Prohibited Service at Savings and Loan Holding Companies, 25948-25957 [E7-8677]
Download as PDF
<![CDATA[
25948
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
unique identifier’’ is changed to ‘‘a
combination of numbers selected by the
Secretary of State using a selection
system or method approved by the
Secretary of Agriculture.’’ The change to
the interim rule meets the express
statutory requirement in section
1324(c)(2)(C) of the amended Food
Security Act of 1985 that an approved
unique identifier be numerically
organized on master lists. The definition
in the interim rule would have
permitted, contrary to the statutory text,
an identifier that may not have been
able to be numerically organized in the
master list.
This final rule also affirms the
information contained in the interim
rule concerning Executive Order 12372
and 12988, and the Paperwork
Reduction Act.
Further, for this action, the Office of
Management and Budget has waived its
review under Executive Order 12866.
List of Subjects in 9 CFR Part 205
Agricultural commodities, Archives
and records, Intergovernmental
relations, Reporting and recordkeeping
requirements.
Accordingly, the interim rule that
amended 9 CFR part 205 and that was
published at 71 FR 56338 on September
27, 2006, is adopted with the following
change:
I
PART 205—CLEAR TITLE
PROTECTION FOR PURCHASES OF
FARM PRODUCTS
1. Amend § 205.1 by revising the
definition of ‘‘approved unique
identifier’’ to read as follows:
I
§ 205.1
Definitions
*
*
*
*
*
Approved Unique Identifier means a
combination of numbers selected by the
Secretary of State using a selection
system or method approved by the
Secretary of Agriculture.
Alan Christian,
Acting Administrator, Grain Inspection,
Packers and Stockyards Administration.
[FR Doc. E7–8794 Filed 5–7–07; 8:45 am]
cprice-sewell on PROD1PC66 with RULES
BILLING CODE 3410–KD–P
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 509 and 585
[OTS–2007–0008]
RIN 1550–AC14
Prohibited Service at Savings and
Loan Holding Companies
AGENCIES: Office of Thrift Supervision
(OTS), Treasury.
ACTION: Interim final rule with request
for comment.
SUMMARY: OTS is adopting an interim
final rule implementing section 710(a)
of the Financial Services Regulatory
Relief Act of 2006, which added a new
section 19(e) to the Federal Deposit
Insurance Act (FDIA). Section 19(e) of
the FDIA prohibits any person who has
been convicted of any criminal offense
involving dishonesty or a breach of
trust, or money laundering or has agreed
to enter into a pretrial diversion or
similar program in connection with a
prosecution for such an offense from
holding certain positions with respect to
a savings and loan holding company
(SLHC). The interim final rule describes
the actions that are prohibited under the
new statute and describes procedures
for applying for an OTS order granting
a case-by-case exemption. The rule also
provides two regulatory exemptions: An
exemption for certain SLHC employees
whose activities and responsibilities are
limited solely to agriculture, forestry,
retail merchandising, manufacturing, or
public utilities operations, and a
temporary exemption for certain
persons who held positions with respect
to a SLHC as of the date of enactment
of section 19(e) of the FDIA.
DATES: The interim final rule is effective
on May 8, 2007. Comments on the rule
must be received by July 9, 2007.
ADDRESSES: You may submit comments,
identified by OTS–2007–0008, by any of
the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov, select
‘‘Office of Thrift Supervision’’ from the
agency drop-down menu, then click
submit. Select Docket ID ‘‘OTS–2007–
0008’’ to submit or view public
comments and to view supporting and
related materials for this notice of
proposed rulemaking. The ‘‘User Tips’’
link at the top of the page provides
information on using Regulations.gov,
including instructions for submitting or
viewing public comments, viewing
other supporting and related materials,
and viewing the docket after the close
of the comment period.
PO 00000
Frm 00004
Fmt 4700
Sfmt 4700
• Mail: Regulation Comments, Chief
Counsel’s Office, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552, Attention: OTS–
2007–0008.
• Hand Delivery/Courier: Guard’s
Desk, East Lobby Entrance, 1700 G
Street, NW., from 9 a.m. to 4 p.m. on
business days, Attention: Regulation
Comments, Chief Counsel’s Office,
Attention: OTS–2007–0008.
Instructions: All submissions received
must include the agency name and
docket number for this rulemaking. All
comments received will be entered into
the docket and posted on
Regulations.gov without change,
including any personal information
provided. Comments, including
attachments and other supporting
materials received are part of the public
record and subject to public disclosure.
Do not enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
Viewing Comments Electronically: Go
to https://www.regulations.gov, select
‘‘Office of Thrift Supervision’’ from the
agency drop-down menu, then click
‘‘Submit.’’ Select Docket ID ‘‘OTS–
2007–0008’’ to view public comments
for this notice of proposed rulemaking.
Viewing Comments On-Site: You may
inspect comments at the Public Reading
Room, 1700 G Street, NW., by
appointment. To make an appointment
for access, call (202) 906–5922, send an
e-mail to public.info@ots.treas.gov, or
send a facsimile transmission to (202)
906–6518. (Prior notice identifying the
materials you will be requesting will
assist us in serving you.) We schedule
appointments on business days between
10 a.m. and 4 p.m. In most cases,
appointments will be available the next
business day following the date we
receive a request.
FOR FURTHER INFORMATION CONTACT:
Donna Deale, Director, Holding
Companies and Affiliates, Supervision
Policy, (202) 906–7488, or Karen
Osterloh, Special Counsel, Regulations
and Legislation, (202) 906–6639, Office
of Thrift Supervision, 1700 G Street,
NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
Under section 19(a) of the FDIA, a
person who has been convicted of any
criminal offense involving dishonesty or
a breach of trust, or money laundering
or has agreed to enter into a pretrial
diversion or similar program in
connection with a prosecution for such
an offense may not:
E:\FR\FM\08MYR1.SGM
08MYR1
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
• Become, or continue as, an
institution-affiliated party with respect
to an insured depository institution;
• Own or control, directly or
indirectly, any insured depository
institution; or
• Otherwise participate, directly or
indirectly, in the conduct of the affairs
of any insured depository institution.1
Under section 19(a)(1)(B) of the FDIA,
an insured depository institution may
not permit any person to engage in the
prohibited conduct or continue any
prohibited relationship. Section 19(b) of
the FDIA states that whoever knowingly
violates the statute shall be fined not
more than $1,000,000 for each day the
prohibition is violated or imprisoned for
not more than 5 years or both.
Section 710(a) of the Financial
Services Regulatory Relief Act of 2006,
Pub. L. 109–251, effective October 13,
2006, amended section 19 of the FDIA
by adding a new paragraph (e). New
section 19(e)(1) applies sections 19(a)
and (b) of the FDIA ‘‘to any savings and
loan holding company as if such savings
and loan holding company were an
insured depository institution * * *.’’
Section 19(e)(2) of the FDIA authorizes
the Director of OTS to provide
exemptions from the prohibitions, by
regulation or order, if the exemption is
consistent with the purposes of new
paragraph (e).
OTS is amending its regulations to
add a new part 585 to implement these
new restrictions. The OTS interim final
rule incorporates interpretations
contained in the FDIC’s Statement of
Policy issued under section 19(a) of the
FDIA (63 FR 66177) (Dec. 1, 1998)
(FDIC’s SOP) and in the FDIC’s rules at
12 CFR part 303, subpart L—Section 19
of the FDI Act (Consent to Service of
Persons Convicted of Certain Criminal
Offenses) and 12 CFR part 308, subpart
M—Procedures and Standards
Applicable to an Application pursuant
to Section 19 of the FDIA. The
provisions of the new interim final rule
are summarized below.
II. Description of the Interim Final Rule
cprice-sewell on PROD1PC66 with RULES
What does this part do? (§ 585.10)
Section 585.10 states that new part
585 implements the prohibitions under
section 19(e)(1) of the FDIA. Section
585.10 also states that the new rule
implements section 19(e)(2) of the FDIA,
which permits the Director to provide
1 12 U.S.C. 1829(a)(1). The Federal Deposit
Insurance Corporation (FDIC) may give prior
written consent to actions that would otherwise
violate the prohibition. The statute imposes a tenyear ban against the FDIC’s consent for a person
convicted of certain crimes enumerated in Title 18
of the United States Code, absent a motion by FDIC
and approval by the sentencing court.
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
exemptions, by regulation or order, from
the application of the prohibition. The
new part provides an exemption for
SLHC employees whose activities and
responsibilities are limited solely to
agriculture, forestry, retail
merchandising, manufacturing, or
public utilities operations, and a
temporary exemption for certain
persons who held positions with respect
to a SLHC as of the date of enactment
of section 19(e) of the FDIA. The interim
final rule also describes procedures for
applying for an OTS order granting an
exemption on a case-by-case basis.
What definitions apply to this part?
(§ 585.20)
Section 585.20 lists definitions used
in the new part. These definitions are
discussed throughout this preamble in
connection with the relevant
substantive provision.
Prohibition
What actions are prohibited? (§ 585.30)
Paragraph (a) of this section reiterates
the prohibitions that apply to persons
under section 19(e) of the FDIA.2
Specifically, paragraph (a) states that if
a person was convicted of a criminal
offense described below, or agreed to
enter into a pre-trial diversion or similar
program in connection with a
prosecution for such a criminal offense,
he or she may not hold certain positions
with any SLHC.
First, the person may not become, or
continue as, an institution-affiliated
party with respect to any SLHC. For the
purposes of the new part, the term
‘‘institution-affiliated party’’ is defined
in 12 U.S.C. 1813(u), except that this
definition is applied by substituting
SLHC for insured depository institution
each place that it appears. Under this
definition, an ‘‘institution-affiliated
party’’ of a SLHC includes:
• Any director, officer, employee, or
controlling stockholder (other than a
bank holding company) of, or agent for,
a SLHC. This category would also
include persons who are deemed to be
de facto employees of a SLHC, based on
applicable standards of employment
law.3
• Any person who has filed or is
required to file a change in control
notice with the appropriate Federal
banking agency under 12 U.S.C.
1817(j)—the Change in Bank Control
Act.
2 A person is defined to include only individuals,
but does not include a corporation, firm or other
business entity. See Section A. of FDIC’s SOP, 63
FR at 66184.
3 Id.
PO 00000
Frm 00005
Fmt 4700
Sfmt 4700
25949
• Any shareholder, consultant, joint
venture partner, and any other person
determined by [OTS] (by regulation or
case-by-case) who participates in the
conduct of the affairs of the SLHC.
Participation in the conduct of the
affairs of the SLHC is discussed below.
• Any independent contractor
(including any attorney, appraiser, or
accountant) who knowingly or
recklessly participates in any violation
of any law or regulation, any breach of
fiduciary duty, or any unsafe or
unsound practice, which caused or is
likely to cause more than a minimal
financial loss to, or a significant adverse
effect on, the SLHC.
Second, the person may not own or
control, directly or indirectly, a SLHC.
For the purposes of defining ‘‘control’’
and ownership under section 19(a) of
the FDIA, FDIC’s SOP uses the
definition of ‘‘control’’ in the Change in
Bank Control Act (12 U.S.C.
1817(j)(8)(B)). The OTS rule
implementing the Change in Bank
Control Act and the Savings and Loan
Holding Company Act is at 12 CFR part
574. The rule provides that a person
will own or control a SLHC if he or she
owns or controls that company under 12
CFR part 574.
Finally, the person may not otherwise
participate, directly or indirectly, in the
conduct of the affairs of a SLHC. Given
the changes in banking, including
financial modernization and the rapid
pace of technology, a regulatory listing
of activities that constitute participation
is neither practical nor advisable.
Accordingly, like FDIC’s SOP, the
interim final rule does not define
precisely what activities constitute
‘‘participation.’’ Rather, agency and
court decisions will provide the guide
as to what standards will be applied. As
a general proposition, however,
participation will depend upon the
degree of influence or control over the
management or affairs of the SLHC.
Those who exercise major policymaking
functions at a SLHC would fall within
this category.4
OTS notes that the statutory
prohibitions do not directly apply to a
person who is an institution-affiliated
party with respect to a non-depository
institution subsidiary of a SLHC, owns
or controls such a subsidiary, or
participates in the affairs of such a
subsidiary.5 However, it is possible that
a person occupying such a position with
a subsidiary could be subject to the
4 Id.
5 Accordingly, section 585.20 of the interim rule:
(1) defines SLHC by cross-reference to OTS existing
regulations at 12 CFR 583.20, and (2) excludes a
subsidiary of a SLHC that is not itself a SLHC.
E:\FR\FM\08MYR1.SGM
08MYR1
25950
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
prohibitions if the person participates in
the conduct of the affairs of the SLHC.
For example, a director or officer of a
subsidiary will be covered if he or she
is in a position to influence or control
the management or affairs of the SLHC.6
Section 585.30(b) restates the
statutory prohibition applicable to
SLHCs. Specifically, this section
provides that a SLHC may not permit
any person described above to engage in
any conduct or to continue any
prohibited relationship. OTS believes
that section 19(e) imposes a duty upon
the SLHC to make a reasonable inquiry
regarding a person’s history, which
consists of taking steps appropriate
under the circumstances, consistent
with applicable law, to avoid hiring or
permitting participation in its affairs by
a person who has a conviction or
program entry for a covered offense. At
a minimum, each SLHC should
establish a screening process that
provides information concerning any
convictions or program entry pertaining
to a job applicant. This would include,
for example, the completion of a written
employment application requiring a
listing of all convictions and program
entries.7
cprice-sewell on PROD1PC66 with RULES
What convictions or agreements to enter
into pre-trial diversions or similar
programs are covered by this part?
(§ 585.40)
Section 585.40 describes the types of
convictions and agreements that are
covered by the part. The interim final
rule states that part 585 applies to:
• Any conviction of a criminal
offense (i.e., a felony or misdemeanor)
involving dishonesty, breach of trust, or
money laundering. Convictions do not
cover arrests, pending cases not brought
to trial, acquittals, convictions reversed
on appeal, pardoned convictions, or
expunged convictions.8
• Any agreement to enter into a
pretrial diversion or similar program in
connection with a prosecution for a
criminal offense involving dishonesty,
breach of trust or money laundering. A
pretrial diversion or similar program is
a program involving a suspension or
eventual dismissal of charges or of a
criminal prosecution based upon the
person’s agreement for treatment,
rehabilitation, restitution, or other noncriminal or non-punitive alternative.9
6 Compare Section A. of FDIC’s SOP, 63 FR at
66184 (‘‘Directors and officers of * * * subsidiaries
of an insured depository institution will be covered
if they are in a position to influence or control the
management or affairs of the insured institution.’’)
7 See Introduction to FDIC’s SOP, 63 FR at 66184.
8 See Section B.(1) of FDIC’s SOP, 63 FR at 66184.
9 See Section B.(2) of FDIC’s SOP, 63 FR at
66184–85.
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
A determination whether a criminal
offense involves dishonesty or breach of
trust will be based on the statutory
elements of the crime, rather than the
specific factual circumstances
surrounding a crime.10 For SLHCs
attempting to comply with the
prohibitions, the analysis of the factual
background behind crimes could prove
to be an impossible task since records
and factual background will not always
be available.
‘‘Dishonesty’’ means directly or
indirectly to cheat or defraud, to cheat
or defraud for monetary gain or its
equivalent, or to wrongfully take
property belonging to another in
violation of any criminal statute. It
includes acts involving a want of
integrity, lack of probity, or a
disposition to distort, cheat, or act
deceitfully or fraudulently, and may
include crimes which federal, state or
local laws define as dishonest. A
‘‘breach of trust’’ means a wrongful act,
use, misappropriation, or omission with
respect to any property or fund which
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. All
convictions for offenses concerning the
illegal manufacture, sale, distribution of
or trafficking in controlled substances,
as defined under Federal law, require an
application unless the person is exempt
under § 585.100.11
As noted above, a conviction of a
criminal offense excludes pardoned and
expunged convictions. OTS solicits
comments on whether states and other
jurisdictions have any analogous
procedures for expunging any record
regarding participation in a pretrial
diversion and similar program and
whether it is feasible to recognize these
procedures in the final rule.
What adjudications and offenses are not
covered by this part? (§ 585.50)
The interim final rule excludes
certain types of adjudications and
criminal offenses from coverage.
Specifically, the part does not cover any
adjudication by a court against a person
as a youthful offender or as a juvenile
delinquent. Such convictions are
generally not considered to be
convictions for criminal offenses.
Moreover, it is questionable whether
SLHCs could obtain records regarding
such adjudications.
The rule also does not cover certain
de minimis criminal offenses. OTS
10 See Section B.(3) of FDIC’s SOP, 63 FR at
66185.
11 Id.
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
believes that the exempted offenses are
of such a minimal nature and of such
low risk that the affected person may
hold any position with a SLHC. This
approach has the advantage of
addressing a large number of persons
who have agreed to pretrial diversion
since in most cases, the crimes involved
in such programs are not serious ones
that involve significant risk. Under the
interim final rule, a criminal offense is
de minimis if six criteria are met. First,
the person may have only one
conviction or pretrial diversion. Second,
the offense must have been punishable
by imprisonment for a term of less than
one year, a fine of less than $1,000, or
both, and the person must not have
served time in jail for the offense. Third,
the conviction or program must be
entered at least five years before the date
the person first held a position
described in § 585.30(a) above. Fourth,
the offense may not involve an insured
depository institution, an insured credit
union, or other banking organization
(including a SLHC, bank holding
company, or financial holding
company). Fifth, the person must
disclose the conviction or pretrial
diversion or similar program to all
insured depository institutions, insured
credit unions, and other banking
organizations the affairs of which he or
she participates. Finally, the person
must be covered by a fidelity bond to
the same extent as others in similar
positions with the SLHC.12
Like the FDIC policy statement, the
OTS interim final rule states that a de
minimis criminal offense must be
punishable by imprisonment for a term
of less than one year, a fine of less than
$1,000, or both. OTS specifically
requests comment on two alternatives to
this standard. First, OTS is considering
applying a standard that more closely
tracks the way state and local
jurisdictions distinguish misdemeanor
and felony offenses. OTS specifically
requests suggestions on how this might
be accomplished. Alternatively, OTS
may define a de minimis criminal
offense by reference to the prison
sentence or fine actually imposed on an
individual in a particular case. For pretrial diversions, this criterion could be
based on the suspended sentence or,
where there is no suspended sentence,
on the maximum punishment under the
statute. OTS specifically solicits
comments on whether this alternative is
appropriate and, if so, what prison
sentence or fine should constitute a de
minimis offense.
12 See Sections B.(4) & B.(5) of FDIC’s SOP, 63 FR
at 66185.
E:\FR\FM\08MYR1.SGM
08MYR1
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
Exemptions
Who is exempt from the prohibition
under this part? (§ 585.100)
As noted above, section 19(e)(2) of the
FDIA authorizes the Director of OTS to
provide exemptions from the
prohibitions, by regulation or order, if
the exemption is consistent with the
purposes of the prohibition. The
primary purpose of section 19 of the
FDIA, as originally enacted, appears to
be to lower insured depository
institutions’ risk of exposure to theft,
embezzlement, and other misconduct by
the institution’s employees, contractors,
and others involved in the institution’s
operations and affairs. Accordingly,
when reviewing applications for relief
from section 19(a) of the FDIA, an
essential criterion assessed by FDIC is
whether the affiliation, control, or
participation of a person in the conduct
of the affairs of a depository institution
will threaten the safety and soundness
of any insured depository institution;
will threaten the interests of the
depositors of any such institution; or
will threaten to impair the public
confidence in any such institution.13
OTS believes that it is appropriate to
consider these impacts when it decides
whether to issue an exemption.
Additionally, while the focus of the
FDIA is on the impact to the depository
institution and the deposit insurance
fund, OTS believes that the purposes of
new section 19(e) of the FDIA also
require consideration of an exempted
person’s ability to impact the SLHC,
particularly with respect to major
policymaking.14
In the months following the
enactment of section 19(e) of the FDIA,
OTS received several inquiries from
SLHCs that conduct forestry,
manufacturing, or retail merchandising
operations at the holding company
13 See
section D. of FDIC’s SOP, 63 FR at 66185.
believes that all directors, and those
officers of a SLHC who meet the definition of
‘‘executive officer’’ of the SLHC under 12 CFR
215.2(e)(1)(Regulation O), are involved in major
policymaking. Individuals that meet the definition
of ‘‘officer’’ under the Securities and Exchange
Commission’s rules at 17 CFR 240.16a–1(f) are also
involved in major policymaking. 17 CFR 240.16a–
1(f) states: ‘‘The term ‘‘officer’’ shall mean an
issuer’s president, principal financial officer,
principal accounting officer (or, if there is no such
accounting officer, the controller), any vicepresident of the issuer in charge of a principal
business unit, division or function (such as sales,
administration or finance), any other officer who
performs a policy-making function, or any other
person who performs similar policy-making
functions for the issuer. Officers of the issuer’s
parent(s) or subsidiaries shall be deemed officers of
the issuer if they perform such policy-making
functions for the issuer * * *. For these purposes,
a ’policy-making function’ is not intended to
include policy-making functions that are not
significant.’’
cprice-sewell on PROD1PC66 with RULES
14 OTS
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
level. These SLHCs employ thousands
of employees that engage solely in these
operations. The SLHCs report that the
vast majority of these employees have
no policymaking functions, do not
otherwise participate in the conduct of
the affairs of the SLHC or the subsidiary
insured depository institution, and have
no working relationship with the
subsidiary insured depository
institution. These SLHCs argue that
applying section 19(e) of the FDIA to
these employees would require the
SLHCs to implement unnecessary and
costly background checks and undertake
unnecessary personnel actions. They
also indicate that the application of
section 19(e) of the FDIA would place
them at a competitive disadvantage with
respect to others in their industry that
do not own an insured depository
institution. As a result, several SLHCs
requested exemptions from the
prohibitions in section 19(e) of the FDIA
for employees in their forestry,
manufacturing, and retail
merchandising operations.
OTS believes that it is unlikely that
employees whose responsibilities and
activities are limited solely to forestry,
manufacturing or retail merchandising
operations at the SLHC level would
constitute a threat to safety and
soundness of a subsidiary insured
depository institution, would threaten
the interests of the institution’s
depositors, or would threaten to impair
the public confidence in the institution.
While employees at the highest levels
may be in a position to impact the major
policymaking functions of the SLHC,
the exemption granted in the interim
final rule imposes certain conditions
designed to ensure that the SLHC would
not be materially impacted (see
discussion of conditions below). Subject
to these conditions, OTS finds that an
exemption for SLHC employees whose
responsibilities and activities are
limited solely to forestry,
manufacturing, and retail
merchandising operations is consistent
with the purposes of section 19(e) of the
FDIA.
In addition to forestry, manufacturing,
and retail merchandising employees,
OTS reviewed existing SLHC operations
to determine whether a broader
exemption might be appropriate and
necessary. Based on this review, OTS
has concluded that its regulated SLHCs
also engage in agricultural operations or
provide public utilities at the SLHC
level and has decided to extend the
exemption to SLHC employees whose
activities and responsibilities are
limited solely to such operations.
Employees engaged solely in such
activities at the SLHC level are similar
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
25951
to forestry, manufacturing and retail
merchandising employees with respect
to their ability to threaten the safety and
soundness of the institution, threaten
the interests of depositors or impair the
public confidence of an institution.
Moreover, the exemption granted in the
interim final rule imposes certain
conditions designed to ensure that the
SLHC would not be materially
impacted. Subject to these conditions,
OTS believes that an exemption for
these SLHC employees is also consistent
with the purposes of section 19(e) of the
FDIA.
To qualify for the exemption, the
employee’s responsibilities and
activities must be limited solely to
agriculture, forestry, retail
merchandising, manufacturing, or
public utilities operations. The
exemption would apply to employees
who are directly engaged in these
activities and to employees who provide
administrative services in support of
these activities. Because the employee’s
responsibilities and activities must be
limited solely to the listed operations,
however, the exemption may not
exempt all support personnel. For
example, if a SLHC’s human resources
division also serves divisions or SLHC
subsidiaries that conduct operations
beyond those listed in the exemption,
employees of that division would not
fall within the exemption, unless it can
be demonstrated that a employee’s
particular responsibilities and activities
are limited solely to the listed
operations.
As noted above, the interim final rule
includes conditions designed to ensure
that an exempted person does not have
the ability to impact the SLHC,
particularly with regard to major
policymaking functions. Specifically,
the rule requires a SLHC to maintain a
list of all policymaking positions and
review this list annually. The
employee’s position may not appear on
the SLHC’s list, and the employee may
not, in fact, exercise any policymaking
function with respect to the SLHC.15
Finally, the employee may not be an
institution-affiliated party of the SLHC
other than by virtue of the exempted
15 OTS examiners will review the list of
policymaking positions during regularly scheduled
SLHC examinations. Examiners may request a list
of other positions or job classifications within the
organization to reasonably conclude that such
positions would not normally entail policymaking
functions. Examiners will also review the SLHC’s
policies, procedures, and practices in complying
with this section. During this review, OTS
examiners will consider the SLHC’s methods for
identifying and maintaining the list of
policymaking positions, as well as review a sample
of employees occupying policymaking positions to
verify that the SLHC obtains appropriate
background checks.
E:\FR\FM\08MYR1.SGM
08MYR1
cprice-sewell on PROD1PC66 with RULES
25952
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
employment, may not own or control,
directly or indirectly, the SLHC and
may not participate, directly or
indirectly, in the conduct of the affairs
of the SLHC.16
OTS requests comments on all aspects
of this exemption. For example: Are the
conditions imposed on this exemption
appropriate? Are additional conditions
needed to protect the interests described
above? Are there other facts or
circumstances that might warrant
additional exemptions for classes of
persons or SLHCs?
OTS may modify this exemption
based on the comments received on the
interim final rule. If OTS narrows the
scope of this exemption in the final rule,
it will provide a delayed effective date
for the modification to permit persons
and SLHCs to comply with the changes.
Until that delayed effective date, any
person or SLHC may rely on the
exemption contained in § 585.100(a).
In addition to this exemption for
employees, OTS is temporarily
exempting any prohibited person who
was an institution-affiliated party with
respect to a SLHC, who owned or
controlled, directly or indirectly a
SLHC, or who otherwise participated
directly or indirectly in the conduct of
the affairs of the SLHC on October 13,
2006. The exemption would permit the
person to continue to hold the position
with the SLHC for a limited time. The
exemption expires 120 days after the
effective date of this interim final rule,
unless the SLHC or the person has filed
an application seeking a case-by-case
exemption for the person under
§ 585.110 within the 120-day time
period. If the SLHC or the person files
such an application, the exemption
expires upon OTS’s disposition of the
application.
OTS believes that this exemption is
necessary to ensure that the new statute
does not needlessly disrupt SLHC
operations by requiring the immediate
termination of existing relationships.
OTS has designed this exemption to
ensure that SLHCs have sufficient time
to determine which persons have
convictions or pre-trial diversions
involving the described criminal
offenses, and to provide a meaningful
opportunity for the SLHC or the
prohibited person to demonstrate that
the person’s continued relationship
with the SLHC is consistent with the
purposes of the statute. Accordingly,
OTS has concluded that this exemption
is consistent with the purposes of
section 19(e) of the FDIA.
16 As a result of these conditions, an officer of a
SLHC, for example, would not be within the scope
of the exemption.
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
How do I apply for a case-by-case
exemption? (§ 585.110)
In addition to the regulatory
exemption at § 585.100, the interim final
rule sets out an application process for
a case-by-case exemption from the
prohibitions. To obtain a case-by-case
exemption, a person or SLHC must file
an application with OTS. An applicant
may not file an application less than one
year after the OTS’s denial of the same
exemption.17 Additionally, an applicant
may seek an exemption only with
respect to a designated position (or
designated positions) with a named
SLHC. Thus, if OTS has approved an
exemption for a person for a designated
position with respect to a named SLHC,
another exemption must be obtained
before the person may hold a different
position with the named SLHC or
become an institution-affiliated party of
another SLHC, own or control directly
or indirectly another SLHC, or
participate in the conduct of the affairs
of another SLHC.18 For these purposes,
an exemption granted for a position
with respect to a named SLHC does not
exempt a position with respect to
another SLHC that is within the same
corporate family (e.g., a SLHC that is a
parent or subsidiary of the named
SLHC).19
OTS will process the application
under the standard treatment in 12 CFR
part 516, subpart A, and will review the
application under the procedures in 12
CFR part 516, subpart E (excluding 12
CFR 516.270 and 516.280). The
prohibitions in section 19(e) of the
FDIA, however, will continue to apply
pending OTS action on an application
unless the person qualifies for the
temporary exemption at § 585.100(b).
What factors will OTS consider in
reviewing my exemption application?
(§ 585.120)
An application may cover either a
specified position with a named SLHC
or a person to serve at a specified
position with a named SLHC. In
determining whether to approve an
exemption application, OTS will first
consider the extent to which the
position that is the subject of the
application would permit a person to:
• Participate in the major
policymaking functions of the SLHC; or
• Threaten the safety and soundness
of any insured depository institution
17 See
FDIC rules at 12 CFR 308.158(b).
18 See FDIC rules at 12 CFR 303.222.
19 In the event of a merger or similar transaction,
the person or SLHC would not have to seek a new
exemption if the SLHC is the resulting entity in the
transaction and the responsibilities of the position
do not materially change in connection with the
transaction.
PO 00000
Frm 00008
Fmt 4700
Sfmt 4700
that is controlled by the SLHC, the
interests of its depositors, or the public
confidence in the insured depository
institution.20
OTS will also consider whether the
applicant has demonstrated the person’s
fitness to hold the described position.
Some applications may be approved
without an extensive review of a
person’s fitness, because the position
will not permit a person to participate
in major policymaking functions or to
threaten the safety and soundness of a
depository institution, the interests of
its depositors or public confidence in
the institution. Persons who will occupy
clerical, maintenance, service or purely
administrative positions, for example,
will generally fall into this category.
In making the determinations under
§ 585.120, OTS will consider all
relevant factors including the position,
the amount of influence and control a
person will be able to exercise over the
affairs and operations of the SLHC and
the insured depository institution, the
ability of the SLHC management to
supervise and control the activities of
the person, and, where applicable, the
level of ownership that a person has in
the SLHC. In addition, OTS will
consider the specific nature and
circumstances of the criminal offense
and any evidence of rehabilitation. The
question of whether a person was guilty
of the underlying offense, however, is
not a relevant consideration.21
How will I know if my application is
approved? (§ 585.130)
OTS will issue an order approving or
denying an application. An approval
order will include a summary of the
relevant factors that OTS considered in
approving the application, and will
require fidelity bond coverage for a
position to the same extent as similar
positions with the SLHC. The approval
order may also include such other
conditions as may be appropriate.
A denial order will include a
summary of the relevant factors that
OTS considered in the denial. The
denial order will also include a
statement indicating that the applicant
may file a written request demonstrating
good cause for a hearing on the denial,
and that the applicant must file this
request within 20 days after the date of
issuance of the denial order.
What procedures govern a hearing on
my application? (§ 585.140)
OTS will review a hearing request to
determine if the applicant has
20 See
OTS’s discussion of § 585.100 above.
FDIC rules at 12 CFR 308.157 and Section
D. of FDIC’ SOP, 63 FR at 66185.
21 See
E:\FR\FM\08MYR1.SGM
08MYR1
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
demonstrated good cause for a hearing
on the application. Within 30 days after
the filing of a request, OTS will notify
the applicant in writing of its decision
to grant or deny the hearing request. If
OTS grants the request, it will order a
hearing to be commenced within 60
days of the issuance of the notification.
Parties may request a later hearing date.
OTS rules at 12 CFR part 509 contain
the rules of practice and procedure in
adjudicatory proceedings. The interim
final rule adds a new subpart D to part
509 to govern the procedures for
hearings on a denial of an application
for a case-by-case exemption under
section 19(e) of the FDIA. The interim
final rule incorporates many of the rules
of practice and procedure applicable in
adjudicatory proceedings at 12 CFR part
509. In addition, it specifically
addresses such matters as: The use of
written submissions in lieu of hearing,
the location and timing of the hearing,
the designation of a presiding officer, a
prohibition on discovery, the issuance
of subpoenas, the taking of testimony
and depositions, the administration of
oaths, transcripts, the supplementation
of the record, recommendations by the
presiding officer, certification of the
record, burden of proof, and the
decision by the Director.
cprice-sewell on PROD1PC66 with RULES
III. Regulatory Findings
A. Advance Notice and Public Comment
The Administrative Procedure Act
(APA) authorizes agencies to waive
notice and comment procedures on a
rule when the agency ‘‘for good cause
finds * * * that notice and public
procedure thereon are impracticable,
unnecessary, or contrary to the public
interest.’’ 22 OTS believes the rule meets
the APA standard and that it may issue
this rule as a final rule without advance
notice and comment.
Section 19(e) became effective on
October 13, 2006, and imposes severe
penalties for violations. Under this
statute, those who knowingly violate
section 19(e) are now subject to fines of
not more than $1 million for each day
the prohibition is violated,
imprisonment for not more than 5 years,
or both. OTS believes that SLHCs and
others must be given timely guidance to
permit them to conform their behavior
and avoid the severe penalties
prescribed by the statute. Accordingly,
to the extent that the interim final rule
interprets the prohibitions in section
19(e) of the FDIA, OTS finds that any
delay in the issuance of the interim final
rule is impractical and contrary to the
public interest. OTS also finds that prior
22 5
U.S.C. 553(b)(B).
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
notice and comment on its
interpretation of the section 19(e)
prohibitions is unnecessary. OTS
closely conformed its interpretations of
section 19(e) to the interpretations
contained in FDIC’s SOP, which was
previously subject to notice and public
comment and has been in effect since
1998. SLHCs should be familiar with the
concepts in FDIC’s SOP since it applies
to certain individuals who hold
positions with SLHCs.23
As noted above, the interim final rule
also contains a regulatory exemption for
SLHC employees if their responsibilities
and activities are limited solely to
agriculture, forestry, retail
merchandising, manufacturing, or
public utilities operations. As discussed
more fully in this preamble, OTS has
concluded that the application of the
section 19 prohibition to these
employees will not serve the purposes
of the statute. Moreover, any delay in
the issuance of this exemption for notice
and comment procedures would require
SLHCs to implement unnecessary and
costly background checks and to
undertake unnecessary personnel
actions to terminate or transfer
employees. Accordingly, OTS finds that
notice and public comment on this
aspect of the rule is also unnecessary
and contrary to the public interest.
Similarly, the interim final rule
includes a temporary exemption for
certain persons who held positions with
respect to a SLHC as of the date of
enactment of section 19(e) of the FDIA.
This exemption was designed to ensure
that SLHC operations are not needlessly
disrupted by requiring the immediate
termination of existing relationships.
Accordingly, OTS also finds that notice
and public comment on this exemption
is also unnecessary and contrary to the
public interest.
Finally, the interim final rule
prescribes application and hearing
procedures for exemption requests. This
portion of the interim final rule is an
agency rule of procedure and practice,
which is exempt from notice and
comment procedures.24 In addition, this
portion of the interim final rule closely
follows the related FDIC rules and the
interpretations contained in FDIC’s
SOP. Since the related FDIC rules and
FDIC’s SOP were subject to notice and
public comment and have been
applicable to depository institutions and
certain SLHC positions for many years,
OTS believes that prior notice and
23 See Section A. of FDIC’s SOP, 63 FR at 66184
(Section 19 would apply to [a holding company’s]
directors and officers to the extent that they have
the power to define and direct the policies of the
insured institution.’’)
24 5 U.S.C. 553.
PO 00000
Frm 00009
Fmt 4700
Sfmt 4700
25953
comment on these standards are also
unnecessary and contrary to the public
interest.
Although OTS has concluded that
public notice and comment are not
required for this interim final rule, it
invites comments during the 60-day
period following publication. In
developing a final rule, OTS will
consider all public comments it receives
within that period.
B. Effective Date
Under section 553(d) of the APA, a
rule may not be effective until 30 days
after its publication.25 This provision,
however, does not apply where the
agency finds good cause for making the
rule effective immediately. For the
reasons set forth above, OTS finds that
there is good cause for making this rule
effective immediately. OTS also notes
that the APA’s delayed effective date
requirement does not apply to a
substantive rule that grants or
recognizes an exemption or that relieves
a restriction. As described in this
preamble, this interim final rule
exempts certain persons from the
prohibitions in section 19(e) of the FDIA
and prescribes procedures for granting
additional exemptions on a case-by-case
basis. Because this rule grants
exemptions and relieves restrictions
from the statutory prohibition, it is not
subject to the 30-day delayed effective
date requirement.
Section 302 of the Riegle Community
Development and Regulatory
Improvement Act of 1994 (CDRIA) 26
requires that new regulations and
amendments to existing regulations take
effect on the first day of a calendar
quarter that begins on or after the date
of publication of the rule. This delayed
effective date provision, however,
applies only if the rule imposes
additional reporting, disclosure, or other
new requirements on insured depository
institutions. This rule imposes no
reporting, disclosure or other
requirements on any insured depository
institution. Section 302 is inapplicable.
C. Regulatory Flexibility Act
An initial regulatory flexibility
analysis under the Regulatory
Flexibility Act (RFA) (5 U.S.C. 601 et
seq.) is required only when an agency is
required to publish a notice of proposed
rulemaking.27 As already noted, OTS
has determined that publication of a
notice of proposed rulemaking is not
required for this interim final rule.
Accordingly, the RFA does not require
25 5
U.S.C. 553(d).
U.S.C. 4802.
27 5 U.S.C. 603.
26 12
E:\FR\FM\08MYR1.SGM
08MYR1
25954
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
cprice-sewell on PROD1PC66 with RULES
an initial regulatory flexibility analysis.
Nonetheless, OTS has considered the
likely impact of this rule on small
entities. This interim final rule provides
guidance to SLHCs and others
explaining how OTS will interpret
newly enacted statutory prohibitions,
provides exemptions from these
prohibitions, and describes procedures
for obtaining case-by-case exemptions
from the newly enacted prohibitions
contained in section 19(e) of the FDIA.
On the whole, the interim final rule will
reduce the burden of compliance with
the new statute. For these reasons, the
OTS has concluded that the interim
final rule should not have a significant
impact on a substantial number of small
entities, as defined in the RFA.
D. Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of 1995,
OTS 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. OTS is
requesting comment on a proposed
information collection. OTS also gives
notice that the proposed collection of
information was submitted to OMB for
review and approval (44 U.S.C.
3507(d)). At the end of the comment
period, the comments and
recommendations received will be
analyzed to determine whether the
information collection should be
modified. Any material modifications
will be submitted to OMB for review
and approval. All comments will
become a matter of public record.
Send comments, referring to the
collection by title of the proposal or by
‘‘Prohibited Service at SLHCs (1550–
NEW),’’ to OMB and OTS at these
addresses: Office of Information and
Regulatory Affairs, Attention: Desk
Officer for OTS, U.S. Office of
Management and Budget, 725—17th
Street, NW., Room 10235, Washington,
DC 20503, or by fax to (202) 395–6974;
and Information Collection Comments,
Chief Counsel’s Office, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552, by fax to (202)
906–6518, or by e-mail to
infocollection.comments@ots.treas.gov.
OTS will post comments and the related
index on the OTS Internet Site at
https://www.ots.treas.gov. In addition,
interested persons may inspect
comments at the Public Reading Room,
1700 G Street, NW., by appointment. To
make an appointment, call (202) 906–
5922, send an e-mail to
public.info@ots.treas.gov, or send a
facsimile transmission to (202) 906–
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
7755. To obtain a copy of the
submission to OMB, contact Marilyn K.
Burton at marilyn.burton@ots.treas.gov,
(202) 906–6467, or facsimile number
(202) 906–6518, Litigation Division,
Chief Counsel’s Office, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552.
Comments are invited on:
(a) Whether the collection of
information is necessary for the proper
performance of OTS’s functions,
including whether the information has
practical utility;
(b) The accuracy of the estimates of
the burden of the information
collection, including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
In this interim final rule, OTS is
soliciting comments concerning the
following information collection.
Title: Prohibited Service at Savings
and Loan Holding Companies.
OMB Control Number: 1550–NEW.
Type of Review: New collection.
Frequency of Response: On occasion.
Affected Public: Savings and loan
holding companies.
Abstract: OTS is publishing this
interim final rule implementing section
710(a) of the Financial Services
Regulatory Relief Act of 2006, which
added a new section 19(e) to the Federal
Deposit Insurance Act (FDIA). Section
19(e) of the FDIA prohibits any person
who has been convicted of any criminal
offense involving dishonesty or a breach
of trust, or money laundering or has
agreed to enter into a pretrial diversion
or similar program in connection with a
prosecution for such an offense
(prohibited person) from holding certain
positions with respect to a savings and
loan holding company (SLHC). This
interim rule describes actions that are
prohibited under the new statute and
describes procedures for applying for an
OTS order granting a case-by-case
exemption.
In order for a prohibited person to
obtain or to continue in certain
positions with an SLHC, the SLHC or
the individual will need to apply to the
OTS for an approval order for a case-bycase exemption. OTS does not believe
that this requirement is punitive in
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
intent. Rather, the primary criteria in
assessing such applications is whether
the prohibited person in his/her
proposed capacity at the SLHC
participates in the major policy making
functions of the SLHC or threatens the
safety and soundness of the insured
depository institution that is controlled
by the SLHC, the interests of its
depositors, or the public confidence in
the institution. The proposed collection
of information is not burdensome in
nature and pertains to the position at
the SLHC to be held by the prohibited
person, the prohibited person’s level of
ownership of the SLHC, the specific
nature of the offense involved, evidence
of rehabilitation, and other relevant
factors.
Estimated Number of Respondents:
50.
Estimated Burden Hours per
Response: 16 hours.
Estimated Total Burden: 800 hours.
E. Unfunded Mandates Act of 1995
Section 202 of the Unfunded
Mandates Reform Act of 1995,28
requires that an agency prepare a
budgetary impact statement before
promulgating a rule that includes a
federal mandate that may result in the
expenditure by state, local, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any one year. If a budgetary impact
statement is required, section 205 of the
Unfunded Mandates Act also requires
an agency to identify and consider a
reasonable number of regulatory
alternatives before promulgating a rule.
OTS has determined that the interim
final rule will not result in expenditures
by state, local, and tribal governments,
in the aggregate, or by the private sector,
of more than $100 million in any one
year. Rather, this interim final rule will
reduce the burden of compliance with
newly enacted statutory prohibitions
applicable to SLHCs and others by
explaining how OTS will interpret
newly enacted statutory prohibitions,
providing regulatory exemptions from
these prohibitions, and describing
procedures for obtaining case-by-case
exemptions from the newly enacted
prohibitions contained in section 19(e)
of the FDIA. Accordingly, OTS has not
prepared a budgetary impact statement
or specifically addressed the regulatory
alternatives considered.
F. Executive Order 12866
OTS has determined that the interim
final rule with request for comment is
28 Pub. L. 104–4, 109 Stat. 48 (March 22, 1995)
(Unfunded Mandates Act).
E:\FR\FM\08MYR1.SGM
08MYR1
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
not a significant regulatory action under
Executive Order 12866.
G. Plain Language
Section 722 of the Gramm-LeachBliley Act (12 U.S.C. 4809) requires the
Agencies to use ‘‘plain language’’ in all
proposed and final rules published after
January 1, 2000. OTS believes that the
interim final rule is presented in a clear
and straightforward manner and solicits
comments on ways to make the rule
easier to understand.
List of Subjects
12 CFR Part 509
Administrative practice and
procedure, Penalties.
12 CFR Part 585
Administrative practice and
procedure, Holding companies,
Reporting and recordkeeping
requirements, Savings associations.
Authority and Issuance
For the reasons in the preamble, OTS
is amending chapter V of title 12 of the
Code of Federal Regulations as set forth
below:
I
PART 509—RULES OF PRACTICE AND
PROCEDURE IN ADJUDICATORY
PROCEEDINGS
1. Revise the authority citation for part
509 to read as follows:
I
Authority: 5 U.S.C. 504, 554–557; 12
U.S.C. 1464, 1467, 1467a, 1468, 1817(j), 1818,
1820(k), 1829(e), 3349, 4717; 15 U.S.C. 78(l),
78o–5, 78u–2; 28 U.S.C. 2461 note; 31 U.S.C.
5321; 42 U.S.C. 4012a.
2. In § 509.1, add a new paragraph (i)
to read as follows:
I
§ 509.1
Scope.
*
*
*
*
*
(i) Subpart D of this part governs
hearings on denials of applications for
case-by-case exemptions under 12 CFR
part 585, which implements section
19(e) of the FDIA.
I 3. Add a new subpart D to read as
follows:
Subpart D—Exemptions under Section 19(e)
of the FDIA
Sec.
509.300 Scope.
509.301 Hearing procedures.
cprice-sewell on PROD1PC66 with RULES
Subpart D—Exemptions under Section
19(e) of the FDIA
§ 509.300
Scope.
The procedures in this subpart D
govern hearings on denials of
applications for case-by-case
exemptions under 12 CFR part 585. Part
585 implements section 19(e) of the
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
FDIA, which prohibits persons who
have been convicted of certain criminal
offenses or who have agreed to enter
into a pre-trial diversion or similar
program in connection with a
prosecution for such criminal offenses
from occupying various positions with a
savings and loan holding company.
§ 509.301
Hearing procedures.
(a) Hearings. The following
procedures apply to hearings under 12
CFR part 585.
(1) The hearing shall be held in
Washington, DC, or at another
designated place, before a presiding
officer designated by the Director.
(2) An applicant may elect in writing
to have the matter determined on the
basis of written submissions, rather than
an oral hearing.
(3) The parties to the hearing are OTS
Enforcement counsel and the applicant.
(4) 12 CFR 509.2, 509.4, 509.6 through
509.12, and 509.16 apply to the hearing.
(5) Discovery is not permitted.
(6) A party may introduce relevant
and material documents and make oral
argument at the hearing.
(7) At the discretion of the presiding
officer, witnesses may be presented
within specified time limits, provided
that a list of witnesses is furnished to
the presiding officer and to all other
parties before to the hearing. Witnesses
must be sworn, unless otherwise
directed by the presiding officer. The
presiding officer may ask questions of
any witness. Each party may crossexamine any witness presented by the
opposing party. OTS will furnish a
transcript of the proceedings upon an
applicant’s request and upon the
payment of the costs of the transcript.
(8) The presiding officer has the
power to administer oaths and
affirmations, to take or cause to be taken
depositions of unavailable witnesses,
and to issue, revoke, quash, or modify
subpoenas and subpoenas duces tecum.
If the presentation of witnesses is
permitted, the presiding officer may
require the attendance of witnesses from
any state, territory, or other place
subject to the jurisdiction of the United
States at any location where the
proceeding is being conducted. Witness
fees are paid in accordance with 12 CFR
509.14.
(9) Upon the request of a party, the
record will remain open for five
business days following the hearing for
additional submissions to the record.
(10) OTS Enforcement Counsel has
the burden of proving a prima facie case
that a person is prohibited from a
position under section 19(e) of the
FDIA. The applicant has the burden of
proof on all other matters.
PO 00000
Frm 00011
Fmt 4700
Sfmt 4700
25955
(11) The presiding officer must make
recommendations to the Director, where
possible, within 20 days after the last
day for the parties to submit additions
to the record.
(12) The presiding officer must
forward his or her recommendation to
the Director who shall promptly certify
the entire record, including the
presiding officer’s recommendations.
The Director’s certification will close
the record.
(b) Decision. After the certification of
the record, the Director will notify the
parties of his or her decision by issuing
an order approving or denying the
application.
(1) An approval order will require
fidelity bond coverage for the position
to the same extent as similar positions
with the savings and loan holding
company. The approval order may
include such other conditions as may be
appropriate.
(2) A denial order will include a
summary of the relevant factors under
12 CFR 585.120(b).
I 4. Add a new part 585 to read as
follows:
PART 585—PROHIBITED SERVICE AT
SAVINGS AND LOAN HOLDING
COMPANIES
Sec.
585.10
585.20
What does this part do?
What definitions apply to this part?
Subpart A—Prohibition
585.30 What actions are prohibited?
585.40 What convictions or agreements to
enter into pre-trial diversions or similar
programs are covered by this part?
585.50 What adjudications and offenses are
not covered by this part?
Subpart B—Exemptions
585.100 Who is exempt from the
prohibition under this part?
585.110 How do I apply for a case-by-case
exemption?
585.120 What factors will OTS consider in
reviewing my exemption application?
585.130 How will I know if my application
is approved?
585.140 What procedures govern a hearing
on my application?
Authority: 12 U.S.C. 1462, 1462a, 1463,
1464, 1467a, and 1829(e)
§ 585.10
What does this part do?
This part implements section 19(e)(1)
of the Federal Deposit Insurance Act
(FDIA), which prohibits persons who
have been convicted of certain criminal
offenses or who have agreed to enter
into a pre-trial diversion or similar
program in connection with a
prosecution for such criminal offenses
from occupying various positions with a
savings and loan holding company. This
E:\FR\FM\08MYR1.SGM
08MYR1
25956
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
part also implements section 19(e)(2) of
the FDIA, which permits the Director to
provide exemptions, by regulation or
order, from the application of the
prohibition. This part provides an
exemption for savings and loan holding
company employees whose activities
and responsibilities are limited solely to
agriculture, forestry, retail
merchandising, manufacturing, or
public utilities operations, and a
temporary exemption for certain
persons who held positions with respect
to a savings and loan holding company
as of October 13, 2006. The part also
describes procedures for applying for an
OTS order granting a case-by-case
exemption.
§ 585.20
part?
What definitions apply to this
The following definitions apply to
this part:
Institution-affiliated party is defined
at 12 U.S.C. 1813(u), except that the
phrase ‘‘savings and loan holding
company’’ is substituted for ‘‘insured
depository institution’’ each place that it
appears in that definition.
Person means an individual and does
not include a corporation, firm or other
business entity.
Savings and loan holding company is
defined at 12 CFR 583.20, but excludes
a subsidiary of a savings and loan
holding company that is not itself a
savings and loan holding company.
Subpart A—Prohibition
cprice-sewell on PROD1PC66 with RULES
§ 585.30
What actions are prohibited?
(a) Person. If a person was convicted
of a criminal offense described in
§ 585.40, or agreed to enter into a pretrial diversion or similar program in
connection with a prosecution for such
a criminal offense, he or she may not:
(1) Become, or continue as, an
institution-affiliated party with respect
to any savings and loan holding
company.
(2) Own or control, directly or
indirectly, any savings and loan holding
company. A person will own or control
a savings and loan holding company if
he or she owns or controls that company
under 12 CFR part 574.
(3) Otherwise participate, directly or
indirectly, in the conduct of the affairs
of any savings and loan holding
company.
(b) Savings and loan holding
company. A savings and loan holding
company may not permit any person
described in paragraph (a) of this
section to engage in any conduct or to
continue any relationship prohibited
under that paragraph.
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
§ 585.40 What convictions or agreements
to enter into pre-trial diversions or similar
programs are covered by this part?
(a) Covered convictions and
agreements. Except as described in
§ 585.50, this part covers:
(1) Any conviction of a criminal
offense involving dishonesty, breach of
trust, or money laundering. Convictions
do not cover arrests, pending cases not
brought to trial, acquittals, convictions
reversed on appeal, pardoned
convictions, or expunged convictions.
(2) Any agreement to enter into a
pretrial diversion or similar program in
connection with a prosecution for a
criminal offense involving dishonesty,
breach of trust or money laundering. A
pretrial diversion or similar program is
a program involving a suspension or
eventual dismissal of charges or of a
criminal prosecution based upon an
agreement for treatment, rehabilitation,
restitution, or other non-criminal or
non-punitive alternative.
(b) Dishonesty or breach of trust. A
determination whether a criminal
offense involves dishonesty or breach of
trust is based on the statutory elements
of the crime.
(1) ‘‘Dishonesty’’ means directly or
indirectly to cheat or defraud, to cheat
or defraud for monetary gain or its
equivalent, or to wrongfully take
property belonging to another in
violation of any criminal statute.
Dishonesty includes acts involving a
want of integrity, lack of probity, or a
disposition to distort, cheat, or act
deceitfully or fraudulently, and may
include crimes which federal, state or
local laws define as dishonest.
(2) ‘‘Breach of trust’’ means a
wrongful act, use, misappropriation, or
omission with respect to any property or
fund which 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.
§ 585.50 What adjudications and offenses
are not covered by this part?
(a) Youthful offender or juvenile
delinquent. This part does not cover any
adjudication by a court against a person
as:
(1) A youthful offender under any
youthful offender law; or
(2) A juvenile delinquent by a court
with jurisdiction over minors as defined
by state law.
(b) De minimis criminal offense. This
part does not cover de minimis criminal
offenses. A criminal offense is de
minimis if:
(1) The person has only one
conviction or pretrial diversion or
similar program of record;
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
(2) The offense was punishable by
imprisonment for a term of less than one
year, a fine of less than $1,000, or both,
and the person did not serve time in jail.
(3) The conviction or program was
entered at least five years before the date
the person first held a position
described in § 585.30(a); and
(4) The offense did not involve an
insured depository institution, insured
credit union, or other banking
organization (including a savings and
loan holding company, bank holding
company, or financial holding
company).
(5) The person must disclose the
conviction or pretrial diversion or
similar program to all insured
depository institutions and other
banking organizations the affairs of
which he or she participates.
(6) The person must be covered by a
fidelity bond to the same extent as
others in similar positions with the
savings and loan holding company.
Subpart B—Exemptions
§ 585.100 Who is exempt from the
prohibition under this part?
(a) Employees. An employee of a
savings and loan holding company is
exempt from the prohibition in § 585.30,
if all of the following conditions are
met:
(1) The employee’s responsibilities
and activities are limited solely to
agriculture, forestry, retail
merchandising, manufacturing, or
public utilities operations.
(2) The savings and loan holding
company maintains a list of all
policymaking positions and reviews this
list annually.
(3) The employee’s position does not
appear on the savings and loan holding
company’s list of policymaking
positions, and the employee does not, in
fact, exercise any policymaking function
with the savings and loan holding
company.
(4) The employee:
(i) Is not an institution-affiliated party
of the savings and loan holding
company other than by virtue of the
employment described in paragraph (a)
of this section.
(ii) Does not own or control, directly
or indirectly, the savings and loan
holding company; and
(iii) Does not participate, directly or
indirectly, in the conduct of the affairs
of the savings and loan holding
company.
(b) Temporary exemption. (1) Any
prohibited person who was an
institution-affiliated party with respect
to a savings and loan holding company,
who owned or controlled, directly or
E:\FR\FM\08MYR1.SGM
08MYR1
Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations
indirectly a savings and loan holding
company, or who otherwise participated
directly or indirectly in the conduct of
the affairs of a savings and loan holding
company on October 13, 2006, may
continue to hold the position with the
savings and loan holding company.
(2) This exemption expires on
September 5, 2007, unless the savings
and loan holding company or the person
files an application seeking a case-bycase exemption for the person under
§ 585.110 by that date. If the savings and
loan holding company or the person
files such an application, the temporary
exemption expires on:
(i) The date of issuance of an OTS
order approving the application under
§ 585.130(a);
(ii) The expiration of the 20-day
period for filing a request for hearing
under § 585.130(b) provided there is no
timely request for hearing following the
issuance of an OTS order denying the
application under that section;
(iii) The date that OTS denies a timely
request for hearing under § 585.140(a)
following the issuance of an OTS order
denying the application under
§ 585.130(b);
(iv) The date that the Director issues
a decision under § 585.140(d); or
(v) The date an applicant withdraws
the application.
cprice-sewell on PROD1PC66 with RULES
§ 585.110 How do I apply for a case-bycase exemption?
(a) Who may file. (1) A savings and
loan holding company or a person who
was convicted of a criminal offense
described in § 585.40 or who has agreed
to enter into a pre-trial diversion or
similar program in connection with a
prosecution for such a criminal offense
(‘‘you’’) may file an application seeking
an OTS order granting an exemption
from the prohibitions in this part.
(2) You may seek an exemption only
for a designated position (or positions)
with respect to a named savings and
loan holding company.
(3) You may not file an application
less than one year after the latter of the
date of OTS’s denial of the same
exemption under § 585.130(b),
§ 585.140(a)(2) or § 585.140(d).
(b) Application and review
procedures. You may seek OTS
approval by filing your application with
OTS under the standard treatment
described in 12 CFR part 516, subpart A
of this chapter. OTS will review your
application under 12 CFR part 516,
subpart E of this chapter (excluding 12
CFR 516.270 and 516.280).
(c) Prohibition pending OTS action.
Unless you are exempt under
§ 585.100(b), the prohibitions in
VerDate Aug<31>2005
14:51 May 07, 2007
Jkt 211001
§ 585.30 continue to apply pending OTS
action on your application.
§ 585.120 What factors will OTS consider
in reviewing my application?
(a) OTS review. (1) In determining
whether to approve an exemption
application filed under § 585.110, OTS
will consider the extent to which the
position that is the subject of your
application enables a person to:
(i) Participate in the major
policymaking functions of the savings
and loan holding company; or
(ii) Threaten the safety and soundness
of any insured depository institution
that is controlled by the savings and
loan holding company, the interests of
its depositors, or the public confidence
in the insured depository institution.
(2) OTS will also consider whether
you have demonstrated the person’s
fitness to hold the described position.
Some positions may be approved
without an extensive review of a
person’s fitness because the position
does not enable a person to take the
actions described in paragraph (a)(1) of
this section.
(b) Factors. In making the
determinations under paragraph (a) of
this section, OTS will consider the
following factors:
(1) The position;
(2) The amount of influence and
control a person holding the position
will be able to exercise over the affairs
and operations of the savings and loan
holding company and the insured
depository institution;
(3) The ability of the management of
the savings and loan holding company
to supervise and control the activities of
a person holding the position;
(4) The level of ownership that the
person will have at the savings and loan
holding company;
(5) The specific nature and
circumstances of the criminal offense.
The question whether a person who was
convicted of a crime or who agreed to
enter into a pretrial diversion or similar
program for a crime was guilty of that
crime is not relevant;
(6) Evidence of rehabilitation; and
(7) Any other relevant factor.
§ 585.130 How will I know if my application
is approved?
(a) Approval. If OTS approves your
application, OTS will issue an approval
order. An approval order will include a
summary of the relevant factors that
OTS considered under § 585.120, will
require fidelity bond coverage for the
position to the same extent as similar
positions with the SLHC. The approval
order may include such other
conditions as may be appropriate.
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
25957
(b) Denial. If OTS denies your
application, OTS will issue a denial
order. The denial order will include the
following written information:
(1) A summary of the relevant factors
that OTS considered under § 585.120;
and
(2) A statement indicating that you
may file a written request demonstrating
good cause for a hearing on the denial
of your application, and that you must
file this request with OTS within 20
days of the date of issuance of the order.
§ 585.140 What procedures govern a
hearing on my application?
(a) OTS review of hearing request.
OTS will review your hearing request to
determine if you have demonstrated
good cause for a hearing on your
application. Within 30 days after the
filing of a timely request for a hearing,
OTS will notify you in writing of its
decision to grant or deny the hearing
request. If OTS grants your request for
a hearing, it will order a hearing to be
commenced within 60 days of the
issuance of the notification. Upon the
request of a party, the OTS may order
a later hearing date.
(b) Hearing procedures. Hearing
procedures are set out at 12 CFR part
509, subpart D of this chapter.
Dated: April 30, 2007.
By the Office of Thrift Supervision.
John M. Reich,
Director.
[FR Doc. E7–8677 Filed 5–7–07; 8:45 am]
BILLING CODE 6720–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2006–26775; Directorate
Identifier 2007–CE–01–AD; Amendment 39–
15042; AD 2007–10–01]
RIN 2120–AA64
Airworthiness Directives; Air Tractor,
Inc. Model AT–602 Airplanes
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Final rule.
AGENCY:
SUMMARY: We are adopting a new
airworthiness directive (AD) for certain
Air Tractor, Inc. (Air Tractor) Model
AT–602 airplanes. This AD requires you
to install access holes to do repetitive
detailed visual inspections for cracks in
the horizontal stabilizer brace tube
assembly, and if any cracks are found as
a result of a visual inspection, to replace
E:\FR\FM\08MYR1.SGM
08MYR1
]]>Agencies
[Federal Register Volume 72, Number 88 (Tuesday, May 8, 2007)]
[Rules and Regulations]
[Pages 25948-25957]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-8677]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 509 and 585
[OTS-2007-0008]
RIN 1550-AC14
Prohibited Service at Savings and Loan Holding Companies
AGENCIES: Office of Thrift Supervision (OTS), Treasury.
ACTION: Interim final rule with request for comment.
-----------------------------------------------------------------------
SUMMARY: OTS is adopting an interim final rule implementing section
710(a) of the Financial Services Regulatory Relief Act of 2006, which
added a new section 19(e) to the Federal Deposit Insurance Act (FDIA).
Section 19(e) of the FDIA prohibits any person who has been convicted
of any criminal offense involving dishonesty or a breach of trust, or
money laundering or has agreed to enter into a pretrial diversion or
similar program in connection with a prosecution for such an offense
from holding certain positions with respect to a savings and loan
holding company (SLHC). The interim final rule describes the actions
that are prohibited under the new statute and describes procedures for
applying for an OTS order granting a case-by-case exemption. The rule
also provides two regulatory exemptions: An exemption for certain SLHC
employees whose activities and responsibilities are limited solely to
agriculture, forestry, retail merchandising, manufacturing, or public
utilities operations, and a temporary exemption for certain persons who
held positions with respect to a SLHC as of the date of enactment of
section 19(e) of the FDIA.
DATES: The interim final rule is effective on May 8, 2007. Comments on
the rule must be received by July 9, 2007.
ADDRESSES: You may submit comments, identified by OTS-2007-0008, by any
of the following methods:
Federal eRulemaking Portal: Go to https://
www.regulations.gov, select ``Office of Thrift Supervision'' from the
agency drop-down menu, then click submit. Select Docket ID ``OTS-2007-
0008'' to submit or view public comments and to view supporting and
related materials for this notice of proposed rulemaking. The ``User
Tips'' link at the top of the page provides information on using
Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and
viewing the docket after the close of the comment period.
Mail: Regulation Comments, Chief Counsel's Office, Office
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,
Attention: OTS-2007-0008.
Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention:
Regulation Comments, Chief Counsel's Office, Attention: OTS-2007-0008.
Instructions: All submissions received must include the agency name
and docket number for this rulemaking. All comments received will be
entered into the docket and posted on Regulations.gov without change,
including any personal information provided. Comments, including
attachments and other supporting materials received are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
Viewing Comments Electronically: Go to https://www.regulations.gov,
select ``Office of Thrift Supervision'' from the agency drop-down menu,
then click ``Submit.'' Select Docket ID ``OTS-2007-0008'' to view
public comments for this notice of proposed rulemaking.
Viewing Comments On-Site: You may inspect comments at the Public
Reading Room, 1700 G Street, NW., by appointment. To make an
appointment for access, call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov, or send a facsimile transmission to (202)
906-6518. (Prior notice identifying the materials you will be
requesting will assist us in serving you.) We schedule appointments on
business days between 10 a.m. and 4 p.m. In most cases, appointments
will be available the next business day following the date we receive a
request.
FOR FURTHER INFORMATION CONTACT: Donna Deale, Director, Holding
Companies and Affiliates, Supervision Policy, (202) 906-7488, or Karen
Osterloh, Special Counsel, Regulations and Legislation, (202) 906-6639,
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
Under section 19(a) of the FDIA, a person who has been convicted of
any criminal offense involving dishonesty or a breach of trust, or
money laundering or has agreed to enter into a pretrial diversion or
similar program in connection with a prosecution for such an offense
may not:
[[Page 25949]]
Become, or continue as, an institution-affiliated party
with respect to an insured depository institution;
Own or control, directly or indirectly, any insured
depository institution; or
Otherwise participate, directly or indirectly, in the
conduct of the affairs of any insured depository institution.\1\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1829(a)(1). The Federal Deposit Insurance
Corporation (FDIC) may give prior written consent to actions that
would otherwise violate the prohibition. The statute imposes a ten-
year ban against the FDIC's consent for a person convicted of
certain crimes enumerated in Title 18 of the United States Code,
absent a motion by FDIC and approval by the sentencing court.
---------------------------------------------------------------------------
Under section 19(a)(1)(B) of the FDIA, an insured depository
institution may not permit any person to engage in the prohibited
conduct or continue any prohibited relationship. Section 19(b) of the
FDIA states that whoever knowingly violates the statute shall be fined
not more than $1,000,000 for each day the prohibition is violated or
imprisoned for not more than 5 years or both.
Section 710(a) of the Financial Services Regulatory Relief Act of
2006, Pub. L. 109-251, effective October 13, 2006, amended section 19
of the FDIA by adding a new paragraph (e). New section 19(e)(1) applies
sections 19(a) and (b) of the FDIA ``to any savings and loan holding
company as if such savings and loan holding company were an insured
depository institution * * *.'' Section 19(e)(2) of the FDIA authorizes
the Director of OTS to provide exemptions from the prohibitions, by
regulation or order, if the exemption is consistent with the purposes
of new paragraph (e).
OTS is amending its regulations to add a new part 585 to implement
these new restrictions. The OTS interim final rule incorporates
interpretations contained in the FDIC's Statement of Policy issued
under section 19(a) of the FDIA (63 FR 66177) (Dec. 1, 1998) (FDIC's
SOP) and in the FDIC's rules at 12 CFR part 303, subpart L--Section 19
of the FDI Act (Consent to Service of Persons Convicted of Certain
Criminal Offenses) and 12 CFR part 308, subpart M--Procedures and
Standards Applicable to an Application pursuant to Section 19 of the
FDIA. The provisions of the new interim final rule are summarized
below.
II. Description of the Interim Final Rule
What does this part do? (Sec. 585.10)
Section 585.10 states that new part 585 implements the prohibitions
under section 19(e)(1) of the FDIA. Section 585.10 also states that the
new rule implements section 19(e)(2) of the FDIA, which permits the
Director to provide exemptions, by regulation or order, from the
application of the prohibition. The new part provides an exemption for
SLHC employees whose activities and responsibilities are limited solely
to agriculture, forestry, retail merchandising, manufacturing, or
public utilities operations, and a temporary exemption for certain
persons who held positions with respect to a SLHC as of the date of
enactment of section 19(e) of the FDIA. The interim final rule also
describes procedures for applying for an OTS order granting an
exemption on a case-by-case basis.
What definitions apply to this part? (Sec. 585.20)
Section 585.20 lists definitions used in the new part. These
definitions are discussed throughout this preamble in connection with
the relevant substantive provision.
Prohibition
What actions are prohibited? (Sec. 585.30)
Paragraph (a) of this section reiterates the prohibitions that
apply to persons under section 19(e) of the FDIA.\2\ Specifically,
paragraph (a) states that if a person was convicted of a criminal
offense described below, or agreed to enter into a pre-trial diversion
or similar program in connection with a prosecution for such a criminal
offense, he or she may not hold certain positions with any SLHC.
---------------------------------------------------------------------------
\2\ A person is defined to include only individuals, but does
not include a corporation, firm or other business entity. See
Section A. of FDIC's SOP, 63 FR at 66184.
---------------------------------------------------------------------------
First, the person may not become, or continue as, an institution-
affiliated party with respect to any SLHC. For the purposes of the new
part, the term ``institution-affiliated party'' is defined in 12 U.S.C.
1813(u), except that this definition is applied by substituting SLHC
for insured depository institution each place that it appears. Under
this definition, an ``institution-affiliated party'' of a SLHC
includes:
Any director, officer, employee, or controlling
stockholder (other than a bank holding company) of, or agent for, a
SLHC. This category would also include persons who are deemed to be de
facto employees of a SLHC, based on applicable standards of employment
law.\3\
---------------------------------------------------------------------------
\3\ Id.
---------------------------------------------------------------------------
Any person who has filed or is required to file a change
in control notice with the appropriate Federal banking agency under 12
U.S.C. 1817(j)--the Change in Bank Control Act.
Any shareholder, consultant, joint venture partner, and
any other person determined by [OTS] (by regulation or case-by-case)
who participates in the conduct of the affairs of the SLHC.
Participation in the conduct of the affairs of the SLHC is discussed
below.
Any independent contractor (including any attorney,
appraiser, or accountant) who knowingly or recklessly participates in
any violation of any law or regulation, any breach of fiduciary duty,
or any unsafe or unsound practice, which caused or is likely to cause
more than a minimal financial loss to, or a significant adverse effect
on, the SLHC.
Second, the person may not own or control, directly or indirectly,
a SLHC. For the purposes of defining ``control'' and ownership under
section 19(a) of the FDIA, FDIC's SOP uses the definition of
``control'' in the Change in Bank Control Act (12 U.S.C.
1817(j)(8)(B)). The OTS rule implementing the Change in Bank Control
Act and the Savings and Loan Holding Company Act is at 12 CFR part 574.
The rule provides that a person will own or control a SLHC if he or she
owns or controls that company under 12 CFR part 574.
Finally, the person may not otherwise participate, directly or
indirectly, in the conduct of the affairs of a SLHC. Given the changes
in banking, including financial modernization and the rapid pace of
technology, a regulatory listing of activities that constitute
participation is neither practical nor advisable. Accordingly, like
FDIC's SOP, the interim final rule does not define precisely what
activities constitute ``participation.'' Rather, agency and court
decisions will provide the guide as to what standards will be applied.
As a general proposition, however, participation will depend upon the
degree of influence or control over the management or affairs of the
SLHC. Those who exercise major policymaking functions at a SLHC would
fall within this category.\4\
---------------------------------------------------------------------------
\4\ Id.
---------------------------------------------------------------------------
OTS notes that the statutory prohibitions do not directly apply to
a person who is an institution-affiliated party with respect to a non-
depository institution subsidiary of a SLHC, owns or controls such a
subsidiary, or participates in the affairs of such a subsidiary.\5\
However, it is possible that a person occupying such a position with a
subsidiary could be subject to the
[[Page 25950]]
prohibitions if the person participates in the conduct of the affairs
of the SLHC. For example, a director or officer of a subsidiary will be
covered if he or she is in a position to influence or control the
management or affairs of the SLHC.\6\
---------------------------------------------------------------------------
\5\ Accordingly, section 585.20 of the interim rule: (1) defines
SLHC by cross-reference to OTS existing regulations at 12 CFR
583.20, and (2) excludes a subsidiary of a SLHC that is not itself a
SLHC.
\6\ Compare Section A. of FDIC's SOP, 63 FR at 66184
(``Directors and officers of * * * subsidiaries of an insured
depository institution will be covered if they are in a position to
influence or control the management or affairs of the insured
institution.'')
---------------------------------------------------------------------------
Section 585.30(b) restates the statutory prohibition applicable to
SLHCs. Specifically, this section provides that a SLHC may not permit
any person described above to engage in any conduct or to continue any
prohibited relationship. OTS believes that section 19(e) imposes a duty
upon the SLHC to make a reasonable inquiry regarding a person's
history, which consists of taking steps appropriate under the
circumstances, consistent with applicable law, to avoid hiring or
permitting participation in its affairs by a person who has a
conviction or program entry for a covered offense. At a minimum, each
SLHC should establish a screening process that provides information
concerning any convictions or program entry pertaining to a job
applicant. This would include, for example, the completion of a written
employment application requiring a listing of all convictions and
program entries.\7\
---------------------------------------------------------------------------
\7\ See Introduction to FDIC's SOP, 63 FR at 66184.
---------------------------------------------------------------------------
What convictions or agreements to enter into pre-trial diversions or
similar programs are covered by this part? (Sec. 585.40)
Section 585.40 describes the types of convictions and agreements
that are covered by the part. The interim final rule states that part
585 applies to:
Any conviction of a criminal offense (i.e., a felony or
misdemeanor) involving dishonesty, breach of trust, or money
laundering. Convictions do not cover arrests, pending cases not brought
to trial, acquittals, convictions reversed on appeal, pardoned
convictions, or expunged convictions.\8\
---------------------------------------------------------------------------
\8\ See Section B.(1) of FDIC's SOP, 63 FR at 66184.
---------------------------------------------------------------------------
Any agreement to enter into a pretrial diversion or
similar program in connection with a prosecution for a criminal offense
involving dishonesty, breach of trust or money laundering. A pretrial
diversion or similar program is a program involving a suspension or
eventual dismissal of charges or of a criminal prosecution based upon
the person's agreement for treatment, rehabilitation, restitution, or
other non-criminal or non-punitive alternative.\9\
---------------------------------------------------------------------------
\9\ See Section B.(2) of FDIC's SOP, 63 FR at 66184-85.
---------------------------------------------------------------------------
A determination whether a criminal offense involves dishonesty or
breach of trust will be based on the statutory elements of the crime,
rather than the specific factual circumstances surrounding a crime.\10\
For SLHCs attempting to comply with the prohibitions, the analysis of
the factual background behind crimes could prove to be an impossible
task since records and factual background will not always be available.
---------------------------------------------------------------------------
\10\ See Section B.(3) of FDIC's SOP, 63 FR at 66185.
---------------------------------------------------------------------------
``Dishonesty'' means directly or indirectly to cheat or defraud, to
cheat or defraud for monetary gain or its equivalent, or to wrongfully
take property belonging to another in violation of any criminal
statute. It includes acts involving a want of integrity, lack of
probity, or a disposition to distort, cheat, or act deceitfully or
fraudulently, and may include crimes which federal, state or local laws
define as dishonest. A ``breach of trust'' means a wrongful act, use,
misappropriation, or omission with respect to any property or fund
which 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. All
convictions for offenses concerning the illegal manufacture, sale,
distribution of or trafficking in controlled substances, as defined
under Federal law, require an application unless the person is exempt
under Sec. 585.100.\11\
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
As noted above, a conviction of a criminal offense excludes
pardoned and expunged convictions. OTS solicits comments on whether
states and other jurisdictions have any analogous procedures for
expunging any record regarding participation in a pretrial diversion
and similar program and whether it is feasible to recognize these
procedures in the final rule.
What adjudications and offenses are not covered by this part? (Sec.
585.50)
The interim final rule excludes certain types of adjudications and
criminal offenses from coverage. Specifically, the part does not cover
any adjudication by a court against a person as a youthful offender or
as a juvenile delinquent. Such convictions are generally not considered
to be convictions for criminal offenses. Moreover, it is questionable
whether SLHCs could obtain records regarding such adjudications.
The rule also does not cover certain de minimis criminal offenses.
OTS believes that the exempted offenses are of such a minimal nature
and of such low risk that the affected person may hold any position
with a SLHC. This approach has the advantage of addressing a large
number of persons who have agreed to pretrial diversion since in most
cases, the crimes involved in such programs are not serious ones that
involve significant risk. Under the interim final rule, a criminal
offense is de minimis if six criteria are met. First, the person may
have only one conviction or pretrial diversion. Second, the offense
must have been punishable by imprisonment for a term of less than one
year, a fine of less than $1,000, or both, and the person must not have
served time in jail for the offense. Third, the conviction or program
must be entered at least five years before the date the person first
held a position described in Sec. 585.30(a) above. Fourth, the offense
may not involve an insured depository institution, an insured credit
union, or other banking organization (including a SLHC, bank holding
company, or financial holding company). Fifth, the person must disclose
the conviction or pretrial diversion or similar program to all insured
depository institutions, insured credit unions, and other banking
organizations the affairs of which he or she participates. Finally, the
person must be covered by a fidelity bond to the same extent as others
in similar positions with the SLHC.\12\
---------------------------------------------------------------------------
\12\ See Sections B.(4) & B.(5) of FDIC's SOP, 63 FR at 66185.
---------------------------------------------------------------------------
Like the FDIC policy statement, the OTS interim final rule states
that a de minimis criminal offense must be punishable by imprisonment
for a term of less than one year, a fine of less than $1,000, or both.
OTS specifically requests comment on two alternatives to this standard.
First, OTS is considering applying a standard that more closely tracks
the way state and local jurisdictions distinguish misdemeanor and
felony offenses. OTS specifically requests suggestions on how this
might be accomplished. Alternatively, OTS may define a de minimis
criminal offense by reference to the prison sentence or fine actually
imposed on an individual in a particular case. For pre-trial
diversions, this criterion could be based on the suspended sentence or,
where there is no suspended sentence, on the maximum punishment under
the statute. OTS specifically solicits comments on whether this
alternative is appropriate and, if so, what prison sentence or fine
should constitute a de minimis offense.
[[Page 25951]]
Exemptions
Who is exempt from the prohibition under this part? (Sec. 585.100)
As noted above, section 19(e)(2) of the FDIA authorizes the
Director of OTS to provide exemptions from the prohibitions, by
regulation or order, if the exemption is consistent with the purposes
of the prohibition. The primary purpose of section 19 of the FDIA, as
originally enacted, appears to be to lower insured depository
institutions' risk of exposure to theft, embezzlement, and other
misconduct by the institution's employees, contractors, and others
involved in the institution's operations and affairs. Accordingly, when
reviewing applications for relief from section 19(a) of the FDIA, an
essential criterion assessed by FDIC is whether the affiliation,
control, or participation of a person in the conduct of the affairs of
a depository institution will threaten the safety and soundness of any
insured depository institution; will threaten the interests of the
depositors of any such institution; or will threaten to impair the
public confidence in any such institution.\13\ OTS believes that it is
appropriate to consider these impacts when it decides whether to issue
an exemption. Additionally, while the focus of the FDIA is on the
impact to the depository institution and the deposit insurance fund,
OTS believes that the purposes of new section 19(e) of the FDIA also
require consideration of an exempted person's ability to impact the
SLHC, particularly with respect to major policymaking.\14\
---------------------------------------------------------------------------
\13\ See section D. of FDIC's SOP, 63 FR at 66185.
\14\ OTS believes that all directors, and those officers of a
SLHC who meet the definition of ``executive officer'' of the SLHC
under 12 CFR 215.2(e)(1)(Regulation O), are involved in major
policymaking. Individuals that meet the definition of ``officer''
under the Securities and Exchange Commission's rules at 17 CFR
240.16a-1(f) are also involved in major policymaking. 17 CFR
240.16a-1(f) states: ``The term ``officer'' shall mean an issuer's
president, principal financial officer, principal accounting officer
(or, if there is no such accounting officer, the controller), any
vice-president of the issuer in charge of a principal business unit,
division or function (such as sales, administration or finance), any
other officer who performs a policy-making function, or any other
person who performs similar policy-making functions for the issuer.
Officers of the issuer's parent(s) or subsidiaries shall be deemed
officers of the issuer if they perform such policy-making functions
for the issuer * * *. For these purposes, a 'policy-making function'
is not intended to include policy-making functions that are not
significant.''
---------------------------------------------------------------------------
In the months following the enactment of section 19(e) of the FDIA,
OTS received several inquiries from SLHCs that conduct forestry,
manufacturing, or retail merchandising operations at the holding
company level. These SLHCs employ thousands of employees that engage
solely in these operations. The SLHCs report that the vast majority of
these employees have no policymaking functions, do not otherwise
participate in the conduct of the affairs of the SLHC or the subsidiary
insured depository institution, and have no working relationship with
the subsidiary insured depository institution. These SLHCs argue that
applying section 19(e) of the FDIA to these employees would require the
SLHCs to implement unnecessary and costly background checks and
undertake unnecessary personnel actions. They also indicate that the
application of section 19(e) of the FDIA would place them at a
competitive disadvantage with respect to others in their industry that
do not own an insured depository institution. As a result, several
SLHCs requested exemptions from the prohibitions in section 19(e) of
the FDIA for employees in their forestry, manufacturing, and retail
merchandising operations.
OTS believes that it is unlikely that employees whose
responsibilities and activities are limited solely to forestry,
manufacturing or retail merchandising operations at the SLHC level
would constitute a threat to safety and soundness of a subsidiary
insured depository institution, would threaten the interests of the
institution's depositors, or would threaten to impair the public
confidence in the institution. While employees at the highest levels
may be in a position to impact the major policymaking functions of the
SLHC, the exemption granted in the interim final rule imposes certain
conditions designed to ensure that the SLHC would not be materially
impacted (see discussion of conditions below). Subject to these
conditions, OTS finds that an exemption for SLHC employees whose
responsibilities and activities are limited solely to forestry,
manufacturing, and retail merchandising operations is consistent with
the purposes of section 19(e) of the FDIA.
In addition to forestry, manufacturing, and retail merchandising
employees, OTS reviewed existing SLHC operations to determine whether a
broader exemption might be appropriate and necessary. Based on this
review, OTS has concluded that its regulated SLHCs also engage in
agricultural operations or provide public utilities at the SLHC level
and has decided to extend the exemption to SLHC employees whose
activities and responsibilities are limited solely to such operations.
Employees engaged solely in such activities at the SLHC level are
similar to forestry, manufacturing and retail merchandising employees
with respect to their ability to threaten the safety and soundness of
the institution, threaten the interests of depositors or impair the
public confidence of an institution. Moreover, the exemption granted in
the interim final rule imposes certain conditions designed to ensure
that the SLHC would not be materially impacted. Subject to these
conditions, OTS believes that an exemption for these SLHC employees is
also consistent with the purposes of section 19(e) of the FDIA.
To qualify for the exemption, the employee's responsibilities and
activities must be limited solely to agriculture, forestry, retail
merchandising, manufacturing, or public utilities operations. The
exemption would apply to employees who are directly engaged in these
activities and to employees who provide administrative services in
support of these activities. Because the employee's responsibilities
and activities must be limited solely to the listed operations,
however, the exemption may not exempt all support personnel. For
example, if a SLHC's human resources division also serves divisions or
SLHC subsidiaries that conduct operations beyond those listed in the
exemption, employees of that division would not fall within the
exemption, unless it can be demonstrated that a employee's particular
responsibilities and activities are limited solely to the listed
operations.
As noted above, the interim final rule includes conditions designed
to ensure that an exempted person does not have the ability to impact
the SLHC, particularly with regard to major policymaking functions.
Specifically, the rule requires a SLHC to maintain a list of all
policymaking positions and review this list annually. The employee's
position may not appear on the SLHC's list, and the employee may not,
in fact, exercise any policymaking function with respect to the
SLHC.\15\ Finally, the employee may not be an institution-affiliated
party of the SLHC other than by virtue of the exempted
[[Page 25952]]
employment, may not own or control, directly or indirectly, the SLHC
and may not participate, directly or indirectly, in the conduct of the
affairs of the SLHC.\16\
---------------------------------------------------------------------------
\15\ OTS examiners will review the list of policymaking
positions during regularly scheduled SLHC examinations. Examiners
may request a list of other positions or job classifications within
the organization to reasonably conclude that such positions would
not normally entail policymaking functions. Examiners will also
review the SLHC's policies, procedures, and practices in complying
with this section. During this review, OTS examiners will consider
the SLHC's methods for identifying and maintaining the list of
policymaking positions, as well as review a sample of employees
occupying policymaking positions to verify that the SLHC obtains
appropriate background checks.
\16\ As a result of these conditions, an officer of a SLHC, for
example, would not be within the scope of the exemption.
---------------------------------------------------------------------------
OTS requests comments on all aspects of this exemption. For
example: Are the conditions imposed on this exemption appropriate? Are
additional conditions needed to protect the interests described above?
Are there other facts or circumstances that might warrant additional
exemptions for classes of persons or SLHCs?
OTS may modify this exemption based on the comments received on the
interim final rule. If OTS narrows the scope of this exemption in the
final rule, it will provide a delayed effective date for the
modification to permit persons and SLHCs to comply with the changes.
Until that delayed effective date, any person or SLHC may rely on the
exemption contained in Sec. 585.100(a).
In addition to this exemption for employees, OTS is temporarily
exempting any prohibited person who was an institution-affiliated party
with respect to a SLHC, who owned or controlled, directly or indirectly
a SLHC, or who otherwise participated directly or indirectly in the
conduct of the affairs of the SLHC on October 13, 2006. The exemption
would permit the person to continue to hold the position with the SLHC
for a limited time. The exemption expires 120 days after the effective
date of this interim final rule, unless the SLHC or the person has
filed an application seeking a case-by-case exemption for the person
under Sec. 585.110 within the 120-day time period. If the SLHC or the
person files such an application, the exemption expires upon OTS's
disposition of the application.
OTS believes that this exemption is necessary to ensure that the
new statute does not needlessly disrupt SLHC operations by requiring
the immediate termination of existing relationships. OTS has designed
this exemption to ensure that SLHCs have sufficient time to determine
which persons have convictions or pre-trial diversions involving the
described criminal offenses, and to provide a meaningful opportunity
for the SLHC or the prohibited person to demonstrate that the person's
continued relationship with the SLHC is consistent with the purposes of
the statute. Accordingly, OTS has concluded that this exemption is
consistent with the purposes of section 19(e) of the FDIA.
How do I apply for a case-by-case exemption? (Sec. 585.110)
In addition to the regulatory exemption at Sec. 585.100, the
interim final rule sets out an application process for a case-by-case
exemption from the prohibitions. To obtain a case-by-case exemption, a
person or SLHC must file an application with OTS. An applicant may not
file an application less than one year after the OTS's denial of the
same exemption.\17\ Additionally, an applicant may seek an exemption
only with respect to a designated position (or designated positions)
with a named SLHC. Thus, if OTS has approved an exemption for a person
for a designated position with respect to a named SLHC, another
exemption must be obtained before the person may hold a different
position with the named SLHC or become an institution-affiliated party
of another SLHC, own or control directly or indirectly another SLHC, or
participate in the conduct of the affairs of another SLHC.\18\ For
these purposes, an exemption granted for a position with respect to a
named SLHC does not exempt a position with respect to another SLHC that
is within the same corporate family (e.g., a SLHC that is a parent or
subsidiary of the named SLHC).\19\
---------------------------------------------------------------------------
\17\ See FDIC rules at 12 CFR 308.158(b).
\18\ See FDIC rules at 12 CFR 303.222.
\19\ In the event of a merger or similar transaction, the person
or SLHC would not have to seek a new exemption if the SLHC is the
resulting entity in the transaction and the responsibilities of the
position do not materially change in connection with the
transaction.
---------------------------------------------------------------------------
OTS will process the application under the standard treatment in 12
CFR part 516, subpart A, and will review the application under the
procedures in 12 CFR part 516, subpart E (excluding 12 CFR 516.270 and
516.280). The prohibitions in section 19(e) of the FDIA, however, will
continue to apply pending OTS action on an application unless the
person qualifies for the temporary exemption at Sec. 585.100(b).
What factors will OTS consider in reviewing my exemption application?
(Sec. 585.120)
An application may cover either a specified position with a named
SLHC or a person to serve at a specified position with a named SLHC. In
determining whether to approve an exemption application, OTS will first
consider the extent to which the position that is the subject of the
application would permit a person to:
Participate in the major policymaking functions of the
SLHC; or
Threaten the safety and soundness of any insured
depository institution that is controlled by the SLHC, the interests of
its depositors, or the public confidence in the insured depository
institution.\20\
---------------------------------------------------------------------------
\20\ See OTS's discussion of Sec. 585.100 above.
---------------------------------------------------------------------------
OTS will also consider whether the applicant has demonstrated the
person's fitness to hold the described position. Some applications may
be approved without an extensive review of a person's fitness, because
the position will not permit a person to participate in major
policymaking functions or to threaten the safety and soundness of a
depository institution, the interests of its depositors or public
confidence in the institution. Persons who will occupy clerical,
maintenance, service or purely administrative positions, for example,
will generally fall into this category.
In making the determinations under Sec. 585.120, OTS will consider
all relevant factors including the position, the amount of influence
and control a person will be able to exercise over the affairs and
operations of the SLHC and the insured depository institution, the
ability of the SLHC management to supervise and control the activities
of the person, and, where applicable, the level of ownership that a
person has in the SLHC. In addition, OTS will consider the specific
nature and circumstances of the criminal offense and any evidence of
rehabilitation. The question of whether a person was guilty of the
underlying offense, however, is not a relevant consideration.\21\
---------------------------------------------------------------------------
\21\ See FDIC rules at 12 CFR 308.157 and Section D. of FDIC'
SOP, 63 FR at 66185.
---------------------------------------------------------------------------
How will I know if my application is approved? (Sec. 585.130)
OTS will issue an order approving or denying an application. An
approval order will include a summary of the relevant factors that OTS
considered in approving the application, and will require fidelity bond
coverage for a position to the same extent as similar positions with
the SLHC. The approval order may also include such other conditions as
may be appropriate.
A denial order will include a summary of the relevant factors that
OTS considered in the denial. The denial order will also include a
statement indicating that the applicant may file a written request
demonstrating good cause for a hearing on the denial, and that the
applicant must file this request within 20 days after the date of
issuance of the denial order.
What procedures govern a hearing on my application? (Sec. 585.140)
OTS will review a hearing request to determine if the applicant has
[[Page 25953]]
demonstrated good cause for a hearing on the application. Within 30
days after the filing of a request, OTS will notify the applicant in
writing of its decision to grant or deny the hearing request. If OTS
grants the request, it will order a hearing to be commenced within 60
days of the issuance of the notification. Parties may request a later
hearing date.
OTS rules at 12 CFR part 509 contain the rules of practice and
procedure in adjudicatory proceedings. The interim final rule adds a
new subpart D to part 509 to govern the procedures for hearings on a
denial of an application for a case-by-case exemption under section
19(e) of the FDIA. The interim final rule incorporates many of the
rules of practice and procedure applicable in adjudicatory proceedings
at 12 CFR part 509. In addition, it specifically addresses such matters
as: The use of written submissions in lieu of hearing, the location and
timing of the hearing, the designation of a presiding officer, a
prohibition on discovery, the issuance of subpoenas, the taking of
testimony and depositions, the administration of oaths, transcripts,
the supplementation of the record, recommendations by the presiding
officer, certification of the record, burden of proof, and the decision
by the Director.
III. Regulatory Findings
A. Advance Notice and Public Comment
The Administrative Procedure Act (APA) authorizes agencies to waive
notice and comment procedures on a rule when the agency ``for good
cause finds * * * that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.'' \22\
OTS believes the rule meets the APA standard and that it may issue this
rule as a final rule without advance notice and comment.
---------------------------------------------------------------------------
\22\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------
Section 19(e) became effective on October 13, 2006, and imposes
severe penalties for violations. Under this statute, those who
knowingly violate section 19(e) are now subject to fines of not more
than $1 million for each day the prohibition is violated, imprisonment
for not more than 5 years, or both. OTS believes that SLHCs and others
must be given timely guidance to permit them to conform their behavior
and avoid the severe penalties prescribed by the statute. Accordingly,
to the extent that the interim final rule interprets the prohibitions
in section 19(e) of the FDIA, OTS finds that any delay in the issuance
of the interim final rule is impractical and contrary to the public
interest. OTS also finds that prior notice and comment on its
interpretation of the section 19(e) prohibitions is unnecessary. OTS
closely conformed its interpretations of section 19(e) to the
interpretations contained in FDIC's SOP, which was previously subject
to notice and public comment and has been in effect since 1998. SLHCs
should be familiar with the concepts in FDIC's SOP since it applies to
certain individuals who hold positions with SLHCs.\23\
---------------------------------------------------------------------------
\23\ See Section A. of FDIC's SOP, 63 FR at 66184 (Section 19
would apply to [a holding company's] directors and officers to the
extent that they have the power to define and direct the policies of
the insured institution.'')
---------------------------------------------------------------------------
As noted above, the interim final rule also contains a regulatory
exemption for SLHC employees if their responsibilities and activities
are limited solely to agriculture, forestry, retail merchandising,
manufacturing, or public utilities operations. As discussed more fully
in this preamble, OTS has concluded that the application of the section
19 prohibition to these employees will not serve the purposes of the
statute. Moreover, any delay in the issuance of this exemption for
notice and comment procedures would require SLHCs to implement
unnecessary and costly background checks and to undertake unnecessary
personnel actions to terminate or transfer employees. Accordingly, OTS
finds that notice and public comment on this aspect of the rule is also
unnecessary and contrary to the public interest.
Similarly, the interim final rule includes a temporary exemption
for certain persons who held positions with respect to a SLHC as of the
date of enactment of section 19(e) of the FDIA. This exemption was
designed to ensure that SLHC operations are not needlessly disrupted by
requiring the immediate termination of existing relationships.
Accordingly, OTS also finds that notice and public comment on this
exemption is also unnecessary and contrary to the public interest.
Finally, the interim final rule prescribes application and hearing
procedures for exemption requests. This portion of the interim final
rule is an agency rule of procedure and practice, which is exempt from
notice and comment procedures.\24\ In addition, this portion of the
interim final rule closely follows the related FDIC rules and the
interpretations contained in FDIC's SOP. Since the related FDIC rules
and FDIC's SOP were subject to notice and public comment and have been
applicable to depository institutions and certain SLHC positions for
many years, OTS believes that prior notice and comment on these
standards are also unnecessary and contrary to the public interest.
---------------------------------------------------------------------------
\24\ 5 U.S.C. 553.
---------------------------------------------------------------------------
Although OTS has concluded that public notice and comment are not
required for this interim final rule, it invites comments during the
60-day period following publication. In developing a final rule, OTS
will consider all public comments it receives within that period.
B. Effective Date
Under section 553(d) of the APA, a rule may not be effective until
30 days after its publication.\25\ This provision, however, does not
apply where the agency finds good cause for making the rule effective
immediately. For the reasons set forth above, OTS finds that there is
good cause for making this rule effective immediately. OTS also notes
that the APA's delayed effective date requirement does not apply to a
substantive rule that grants or recognizes an exemption or that
relieves a restriction. As described in this preamble, this interim
final rule exempts certain persons from the prohibitions in section
19(e) of the FDIA and prescribes procedures for granting additional
exemptions on a case-by-case basis. Because this rule grants exemptions
and relieves restrictions from the statutory prohibition, it is not
subject to the 30-day delayed effective date requirement.
---------------------------------------------------------------------------
\25\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------
Section 302 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRIA) \26\ requires that new regulations and
amendments to existing regulations take effect on the first day of a
calendar quarter that begins on or after the date of publication of the
rule. This delayed effective date provision, however, applies only if
the rule imposes additional reporting, disclosure, or other new
requirements on insured depository institutions. This rule imposes no
reporting, disclosure or other requirements on any insured depository
institution. Section 302 is inapplicable.
---------------------------------------------------------------------------
\26\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
C. Regulatory Flexibility Act
An initial regulatory flexibility analysis under the Regulatory
Flexibility Act (RFA) (5 U.S.C. 601 et seq.) is required only when an
agency is required to publish a notice of proposed rulemaking.\27\ As
already noted, OTS has determined that publication of a notice of
proposed rulemaking is not required for this interim final rule.
Accordingly, the RFA does not require
[[Page 25954]]
an initial regulatory flexibility analysis. Nonetheless, OTS has
considered the likely impact of this rule on small entities. This
interim final rule provides guidance to SLHCs and others explaining how
OTS will interpret newly enacted statutory prohibitions, provides
exemptions from these prohibitions, and describes procedures for
obtaining case-by-case exemptions from the newly enacted prohibitions
contained in section 19(e) of the FDIA. On the whole, the interim final
rule will reduce the burden of compliance with the new statute. For
these reasons, the OTS has concluded that the interim final rule should
not have a significant impact on a substantial number of small
entities, as defined in the RFA.
---------------------------------------------------------------------------
\27\ 5 U.S.C. 603.
---------------------------------------------------------------------------
D. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995, OTS 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.
OTS is requesting comment on a proposed information collection. OTS
also gives notice that the proposed collection of information was
submitted to OMB for review and approval (44 U.S.C. 3507(d)). At the
end of the comment period, the comments and recommendations received
will be analyzed to determine whether the information collection should
be modified. Any material modifications will be submitted to OMB for
review and approval. All comments will become a matter of public
record.
Send comments, referring to the collection by title of the proposal
or by ``Prohibited Service at SLHCs (1550-NEW),'' to OMB and OTS at
these addresses: Office of Information and Regulatory Affairs,
Attention: Desk Officer for OTS, U.S. Office of Management and Budget,
725--17th Street, NW., Room 10235, Washington, DC 20503, or by fax to
(202) 395-6974; and Information Collection Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, by fax to (202) 906-6518, or by e-mail to
infocollection.comments@ots.treas.gov. OTS will post comments and the
related index on the OTS Internet Site at https://www.ots.treas.gov. In
addition, interested persons may inspect comments at the Public Reading
Room, 1700 G Street, NW., by appointment. To make an appointment, call
(202) 906-5922, send an e-mail to public.info@ots.treas.gov, or send a
facsimile transmission to (202) 906-7755. To obtain a copy of the
submission to OMB, contact Marilyn K. Burton at
marilyn.burton@ots.treas.gov, (202) 906-6467, or facsimile number (202)
906-6518, Litigation Division, Chief Counsel's Office, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
Comments are invited on:
(a) Whether the collection of information is necessary for the
proper performance of OTS's functions, including whether the
information has practical utility;
(b) The accuracy of the estimates of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
In this interim final rule, OTS is soliciting comments concerning
the following information collection.
Title: Prohibited Service at Savings and Loan Holding Companies.
OMB Control Number: 1550-NEW.
Type of Review: New collection.
Frequency of Response: On occasion.
Affected Public: Savings and loan holding companies.
Abstract: OTS is publishing this interim final rule implementing
section 710(a) of the Financial Services Regulatory Relief Act of 2006,
which added a new section 19(e) to the Federal Deposit Insurance Act
(FDIA). Section 19(e) of the FDIA prohibits any person who has been
convicted of any criminal offense involving dishonesty or a breach of
trust, or money laundering or has agreed to enter into a pretrial
diversion or similar program in connection with a prosecution for such
an offense (prohibited person) from holding certain positions with
respect to a savings and loan holding company (SLHC). This interim rule
describes actions that are prohibited under the new statute and
describes procedures for applying for an OTS order granting a case-by-
case exemption.
In order for a prohibited person to obtain or to continue in
certain positions with an SLHC, the SLHC or the individual will need to
apply to the OTS for an approval order for a case-by-case exemption.
OTS does not believe that this requirement is punitive in intent.
Rather, the primary criteria in assessing such applications is whether
the prohibited person in his/her proposed capacity at the SLHC
participates in the major policy making functions of the SLHC or
threatens the safety and soundness of the insured depository
institution that is controlled by the SLHC, the interests of its
depositors, or the public confidence in the institution. The proposed
collection of information is not burdensome in nature and pertains to
the position at the SLHC to be held by the prohibited person, the
prohibited person's level of ownership of the SLHC, the specific nature
of the offense involved, evidence of rehabilitation, and other relevant
factors.
Estimated Number of Respondents: 50.
Estimated Burden Hours per Response: 16 hours.
Estimated Total Burden: 800 hours.
E. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995,\28\
requires that an agency prepare a budgetary impact statement before
promulgating a rule that includes a federal mandate that may result in
the expenditure by state, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year. If a budgetary impact statement is required, section 205 of the
Unfunded Mandates Act also requires an agency to identify and consider
a reasonable number of regulatory alternatives before promulgating a
rule. OTS has determined that the interim final rule will not result in
expenditures by state, local, and tribal governments, in the aggregate,
or by the private sector, of more than $100 million in any one year.
Rather, this interim final rule will reduce the burden of compliance
with newly enacted statutory prohibitions applicable to SLHCs and
others by explaining how OTS will interpret newly enacted statutory
prohibitions, providing regulatory exemptions from these prohibitions,
and describing procedures for obtaining case-by-case exemptions from
the newly enacted prohibitions contained in section 19(e) of the FDIA.
Accordingly, OTS has not prepared a budgetary impact statement or
specifically addressed the regulatory alternatives considered.
---------------------------------------------------------------------------
\28\ Pub. L. 104-4, 109 Stat. 48 (March 22, 1995) (Unfunded
Mandates Act).
---------------------------------------------------------------------------
F. Executive Order 12866
OTS has determined that the interim final rule with request for
comment is
[[Page 25955]]
not a significant regulatory action under Executive Order 12866.
G. Plain Language
Section 722 of the Gramm-Leach-Bliley Act (12 U.S.C. 4809) requires
the Agencies to use ``plain language'' in all proposed and final rules
published after January 1, 2000. OTS believes that the interim final
rule is presented in a clear and straightforward manner and solicits
comments on ways to make the rule easier to understand.
List of Subjects
12 CFR Part 509
Administrative practice and procedure, Penalties.
12 CFR Part 585
Administrative practice and procedure, Holding companies, Reporting
and recordkeeping requirements, Savings associations.
Authority and Issuance
0
For the reasons in the preamble, OTS is amending chapter V of title 12
of the Code of Federal Regulations as set forth below:
PART 509--RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY
PROCEEDINGS
0
1. Revise the authority citation for part 509 to read as follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1464, 1467, 1467a,
1468, 1817(j), 1818, 1820(k), 1829(e), 3349, 4717; 15 U.S.C. 78(l),
78o-5, 78u-2; 28 U.S.C. 2461 note; 31 U.S.C. 5321; 42 U.S.C. 4012a.
0
2. In Sec. 509.1, add a new paragraph (i) to read as follows:
Sec. 509.1 Scope.
* * * * *
(i) Subpart D of this part governs hearings on denials of
applications for case-by-case exemptions under 12 CFR part 585, which
implements section 19(e) of the FDIA.
0
3. Add a new subpart D to read as follows:
Subpart D--Exemptions under Section 19(e) of the FDIA
Sec.
509.300 Scope.
509.301 Hearing procedures.
Subpart D--Exemptions under Section 19(e) of the FDIA
Sec. 509.300 Scope.
The procedures in this subpart D govern hearings on denials of
applications for case-by-case exemptions under 12 CFR part 585. Part
585 implements section 19(e) of the FDIA, which prohibits persons who
have been convicted of certain criminal offenses or who have agreed to
enter into a pre-trial diversion or similar program in connection with
a prosecution for such criminal offenses from occupying various
positions with a savings and loan holding company.
Sec. 509.301 Hearing procedures.
(a) Hearings. The following procedures apply to hearings under 12
CFR part 585.
(1) The hearing shall be held in Washington, DC, or at another
designated place, before a presiding officer designated by the
Director.
(2) An applicant may elect in writing to have the matter determined
on the basis of written submissions, rather than an oral hearing.
(3) The parties to the hearing are OTS Enforcement counsel and the
applicant.
(4) 12 CFR 509.2, 509.4, 509.6 through 509.12, and 509.16 apply to
the hearing.
(5) Discovery is not permitted.
(6) A party may introduce relevant and material documents and make
oral argument at the hearing.
(7) At the discretion of the presiding officer, witnesses may be
presented within specified time limits, provided that a list of
witnesses is furnished to the presiding officer and to all other
parties before to the hearing. Witnesses must be sworn, unless
otherwise directed by the presiding officer. The presiding officer may
ask questions of any witness. Each party may cross-examine any witness
presented by the opposing party. OTS will furnish a transcript of the
proceedings upon an applicant's request and upon the payment of the
costs of the transcript.
(8) The presiding officer has the power to administer oaths and
affirmations, to take or cause to be taken depositions of unavailable
witnesses, and to issue, revoke, quash, or modify subpoenas and
subpoenas duces tecum. If the presentation of witnesses is permitted,
the presiding officer may require the attendance of witnesses from any
state, territory, or other place subject to the jurisdiction of the
United States at any location where the proceeding is being conducted.
Witness fees are paid in accordance with 12 CFR 509.14.
(9) Upon the request of a party, the record will remain open for
five business days following the hearing for additional submissions to
the record.
(10) OTS Enforcement Counsel has the burden of proving a prima
facie case that a person is prohibited from a position under section
19(e) of the FDIA. The applicant has the burden of proof on all other
matters.
(11) The presiding officer must make recommendations to the
Director, where possible, within 20 days after the last day for the
parties to submit additions to the record.
(12) The presiding officer must forward his or her recommendation
to the Director who shall promptly certify the entire record, including
the presiding officer's recommendations. The Director's certification
will close the record.
(b) Decision. After the certification of the record, the Director
will notify the parties of his or her decision by issuing an order
approving or denying the application.
(1) An approval order will require fidelity bond coverage for the
position to the same extent as similar positions with the savings and
loan holding company. The approval order may include such other
conditions as may be appropriate.
(2) A denial order will include a summary of the relevant factors
under 12 CFR 585.120(b).
0
4. Add a new part 585 to read as follows:
PART 585--PROHIBITED SERVICE AT SAVINGS AND LOAN HOLDING COMPANIES
Sec.
585.10 What does this part do?
585.20 What definitions apply to this part?
Subpart A--Prohibition
585.30 What actions are prohibited?
585.40 What convictions or agreements to enter into pre-trial
diversions or similar programs are covered by this part?
585.50 What adjudications and offenses are not covered by this part?
Subpart B--Exemptions
585.100 Who is exempt from the prohibition under this part?
585.110 How do I apply for a case-by-case exemption?
585.120 What factors will OTS consider in reviewing my exemption
application?
585.130 How will I know if my application is approved?
585.140 What procedures govern a hearing on my application?
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, and 1829(e)
Sec. 585.10 What does this part do?
This part implements section 19(e)(1) of the Federal Deposit
Insurance Act (FDIA), which prohibits persons who have been convicted
of certain criminal offenses or who have agreed to enter into a pre-
trial diversion or similar program in connection with a prosecution for
such criminal offenses from occupying various positions with a savings
and loan holding company. This
[[Page 25956]]
part also implements section 19(e)(2) of the FDIA, which permits the
Director to provide exemptions, by regulation or order, from the
application of the prohibition. This part provides an exemption for
savings and loan holding company employees whose activities and
responsibilities are limited solely to agriculture, forestry, retail
merchandising, manufacturing, or public utilities operations, and a
temporary exemption for certain persons who held positions with respect
to a savings and loan holding company as of October 13, 2006. The part
also describes procedures for applying for an OTS order granting a
case-by-case exemption.
Sec. 585.20 What definitions apply to this part?
The following definitions apply to this part:
Institution-affiliated party is defined at 12 U.S.C. 1813(u),
except that the phrase ``savings and loan holding company'' is
substituted for ``insured depository institution'' each place that it
appears in that definition.
Person means an individual and does not include a corporation, firm
or other business entity.
Savings and loan holding company is defined at 12 CFR 583.20, but
excludes a subsidiary of a savings and loan holding company that is not
itself a savings and loan holding company.
Subpart A--Prohibition
Sec. 585.30 What actions are prohibited?
(a) Person. If a person was convicted of a criminal offense
described in Sec. 585.40, or agreed to enter into a pre-trial
diversion or similar program in connection with a prosecution for such
a criminal offense, he or she may not:
(1) Become, or continue as, an institution-affiliated party with
respect to any savings and loan holding company.
(2) Own or control, directly or indirectly, any savings and loan
holding company. A person will own or control a savings and loan
holding company if he or she owns or controls that company under 12 CFR
part 574.
(3) Otherwise participate, directly or indirectly, in the conduct
of the affairs of any savings and loan holding company.
(b) Savings and loan holding company. A savings and loan holding
company may not permit any person described in paragraph (a) of this
section to engage in any conduct or to continue any relationship
prohibited under that paragraph.
Sec. 585.40 What convictions or agreements to enter into pre-trial
diversions or similar programs are covered by this part?
(a) Covered convictions and agreements. Except as described in
Sec. 585.50, this part covers:
(1) Any conviction of a criminal offense involving dishonesty,
breach of trust, or money laundering. Convictions do not cover arrests,
pending cases not brought to trial, acquittals, convictions reversed on
appeal, pardoned convictions, or expunged convictions.
(2) Any agreement to enter into a pretrial diversion or similar
program in connection with a prosecution for a criminal offense
involving dishonesty, breach of trust or money laundering. A pretrial
diversion or similar program is a program involving a suspension or
eventual dismissal of charges or of a criminal prosecution based upon
an agreement for treatment, rehabilitation, restitution, or other non-
criminal or non-punitive alternative.
(b) Dishonesty or breach of trust. A determination whether a
criminal offense involves dishonesty or breach of trust is based on the
statutory elements of the crime.
(1) ``Dishonesty'' means directly or indirectly to cheat or
defraud, to cheat or defraud for monetary gain or its equivalent, or to
wrongfully take property belonging to another in violation of any
criminal statute. Dishonesty includes acts involving a want of
integrity, lack of probity, or a disposition to distort, cheat, or act
deceitfully or fraudulently, and may include crimes which federal,
state or local laws define as dishonest.
(2) ``Breach of trust'' means a wrongful act, use,
misappropriation, or omission with respect to any property or fund
wh
