Proposed Statement of Policy for Participation in the Conduct of the Affairs of an Insured Depository Institution by Persons Who Have Been Convicted or Have Entered a Pretrial Diversion or Similar Program for Certain Offenses Pursuant to Section 19 of the Federal Deposit Insurance Act, 807-813 [2017-28222]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 83, Number 5 (Monday, January 8, 2018)]
[Notices]
[Pages 807-813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28222]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Proposed Statement of Policy for Participation in the Conduct of 
the Affairs of an Insured Depository Institution by Persons Who Have 
Been Convicted or Have Entered a Pretrial Diversion or Similar Program 
for Certain Offenses Pursuant to Section 19 of the Federal Deposit 
Insurance Act

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Notice.

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SUMMARY: The FDIC seeks to update its Statement of Policy (SOP), which 
is issued pursuant to Section 19 of the Federal Deposit Insurance Act 
(FDI Act) (Section 19). Section 19 prohibits, without the prior written 
consent of the FDIC, any person from participating in banking who has 
been convicted of a crime of dishonesty or breach of trust or money 
laundering, or who has entered a pretrial diversion or similar program 
in connection with the prosecution for such an offense.
    Based upon its experience with the application of the SOP since 
1998, the FDIC is now proposing to revise and issue an updated SOP and 
rescind the current SOP, and is seeking comments on the proposed 
revisions by issuing this Federal Register Notice. Notably, in addition 
to minor format and technical changes, as well as clarifying changes, 
the FDIC is proposing to expand its current de minimis exception to 
encompass insufficient funds checks of aggregate moderate value; small 
dollar, simple theft; and isolated, minor offenses committed by young 
adults. These carefully measured changes are intended to reduce 
regulatory burden by decreasing the number of covered offenses that 
will require an application, while ensuring that insured institutions 
are not subject to risk by convicted persons.

DATES: Comments must be received on or before March 9, 2018.

ADDRESSES: You may submit comments, identified by Section 19, by any of 
the following methods:
     Agency website: https://www.fdic.gov/regulations/laws/federal/. Follow instructions for submitting comments on the Agency 
website.
     Email: [email protected]. Include Section 19 on the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7:00 a.m. and 5:00 p.m.
    Public Inspection: All comments received will be posted without 
change to https://www.fdic.gov/regulations/laws/federal/, including any 
personal information provided. Paper copies of public comments may be 
ordered from the FDIC Public Information Center, 3501 North Fairfax 
Drive, Room E-1002, Arlington, VA 22226 by telephone at (877) 275-3342 
or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Brian Zeller, Review Examiner, (319) 
395-7394 x4125, or Larisa Collado, Section Chief, (202) 898-8509, in 
the Division of Risk Management Supervision; or Michael P. Condon, 
Counsel, (202) 898-6536, or Andrea Winkler, Supervisory Counsel, (202) 
898-3727 in the Legal Division.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 19 of the FDI Act (12 U.S.C. 1829) prohibits, without the 
prior written consent of the FDIC, a person convicted of any criminal 
offense involving dishonesty or breach of trust or money laundering 
(covered offenses), or who has agreed to enter into a pretrial 
diversion or similar program in connection with a prosecution for such 
offense, from becoming or continuing as an institution-affiliated party 
(IAP), owning or controlling, directly or indirectly an insured 
depository institution (insured institution), or otherwise 
participating, directly or indirectly, in the conduct of the affairs of 
an insured institution. Further, the law forbids an insured institution 
from permitting such a person to engage in any conduct or to continue 
any relationship prohibited by Section 19. It also 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 
the FDIC and approval by the sentencing court.
    The FDIC issued, after notice and comment, the current SOP for 
Section

[[Page 808]]

19 of the FDI Act in December 1998 \1\ to provide the public with 
guidance relating to Section 19 and the FDIC's application thereof. The 
1998 SOP, among other things, instituted a set of criteria to provide 
for blanket approval of certain low-risk crimes, and for persons 
convicted of such de minimis crimes to forgo filing an application.
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    \1\ 63 FR 66177 (Dec. 1, 1998).
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    A clarification to the SOP was issued in 2007, based on the 2006 
amendment to Section 19 of the FDI Act by the Financial Services 
Regulatory Relief Act of 2006, Public Law 109-351, Sec.  710, which 
modified Section 19 to include coverage of institution-affiliated 
parties (IAPs) participating in the affairs of bank holding companies, 
or savings and loan holding companies, and gave supervisory authority 
over such entities to the Board of Governors of the Federal Reserve 
System (Federal Reserve Board) and the Office of Thrift Supervision 
(OTS), respectively.\2\ The FDIC, in 2011, further clarified the SOP as 
to: (i) The applicability of Section 19 to IAPs of bank and savings and 
loan holding companies; (ii) the meaning of the term ``complete 
expungement;'' and (iii) the factors for considering which convictions 
are considered de minimis. 76 FR 28031 (May 13, 2011). In December of 
2012, the FDIC modified the de minimis exception to filing by changing 
the amount of the maximum potential fine to qualify for de minimis 
treatment from $1,000 to $2,500. The modification also changed the 
limit on the amount of jail time needed to qualify for the de minimis 
exception from no jail time served to a maximum number of three days 
spent in jail. 77 FR 74847 (Dec 18, 2012)).
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    \2\ The FDIC amended the SOP by including a footnote which noted 
the authority of the Federal Reserve Board and the OTS with regard 
to bank and savings and loan holding companies under Section 19. 72 
FR 73823 (Dec. 28, 2007) with correction issued at 73 FR 5270 (Jan. 
29, 2008). In May of 2011, the FDIC subsequently eliminated the 
footnote added in December of 2007 and incorporated the change 
directly into the text of the SOP. It also noted the coming transfer 
of authority under the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Public Law 111-202, Sec.  312 (2010) (Dodd-Frank) of 
savings and loan holding company jurisdiction to the Federal Reserve 
Board.
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    The FDIC is again proposing to amend the SOP as more fully set 
forth below, and seeks comments on a number of the proposed changes as 
set out forth Section II of this Federal Register Notice. The proposed 
changes are identified by the area of the SOP that is being considered 
for the revision.
    When final, the revised SOP, after consideration of any comments 
received, will be published in the Federal Register and on the FDIC's 
website at www.fdic.gov.

II. Revisions to the Statement of Policy

    The SOP will be revised in the following areas:

1. Introductory Section

    In addition to some minor grammatical and format changes, the 
introductory section includes language that would allow an FDIC-
supervised insured institution, in the case of a prospective employee 
or other person seeking to participate in the affairs of the 
institution, to make a conditional offer of employment to such a 
person, contingent on the completion of a background check satisfactory 
to the institution and a determination that the person is not barred by 
the provisions of Section 19. In such a case, the SOP makes clear that 
the prospective employee or person seeking to participate in the 
affairs of the institution will not be permitted to work at or 
participate in the affairs of, the institution unless the applicant's 
background check is completed to the satisfaction of the institution 
and a determination is made that the applicant's employment or 
participation at the institution is not barred by Section 19. Related 
to this change is an alteration of the language that limits the FDIC's 
determination whether an institution's inquiry as to whether Section 19 
applies is reasonable.
    The FDIC is seeking to clarify its supervisory role regarding 
Section 19 and seeks comments whether the use of a conditional offer of 
employment is a practice that is helpful to FDIC-supervised 
institutions in their hiring practices and in their determination 
whether Section 19 bars an applicant from being employed at, or 
participating in, the affairs of the institution.

2. A. Scope of Section 19

    In addition to some minor grammatical and format changes, the FDIC 
is proposing to provide a more consistent view of the application of 
Section 19 to certain persons who are not employees, officers, 
directors or shareholders of an insured institution. The definition of 
persons covered by Section 19 includes ``institution affiliated 
parties'' (a term which is defined in 12 U.S.C. 1813(u) and that is 
broader than employees, officers, directors or shareholders). The FDIC 
believes that the key concern under Section 19 is whether a person 
participates directly or indirectly in the affairs of an insured 
institution, regardless of their formal relationship with the 
institution. Therefore, the example currently set out in the SOP 
regarding employees of the insured institution's holding company has 
been changed to be more consistent with the language of Section 19 and 
the definition contained in 12 U.S.C. 1813(u), to focus on the ability 
of employees to define and direct the management or affairs of the 
insured institution. Similarly, the concept of participating in the 
affairs of an insured institution has been added to the example of 
directors and officers of affiliates, subsidiaries or joint ventures to 
more accurately reflect the concerns of Section 19.
    In addition, the inclusion of the definition of independent 
contractors, as contained in 12 U.S.C. 1813(u), has been deleted as 
unnecessary in determining whether Section 19 would apply at the time 
the person commenced work for, or participated in the affairs of, the 
insured institution.
    Further, the FDIC deleted language referencing the change that 
expanded Section 19's application to bank and savings and loan holding 
companies. The language now simply notes that if a person also seeks to 
participate in the affairs of a bank or savings and loan holding 
company, they may be required to comply with any requirements of the 
Federal Reserve Board under 12 U.S.C. 1829(d) & (e).
    The FDIC seeks comments on the consistency of the application of 
Section 19 to officers and directors of bank and savings and loan 
holding companies, affiliates, subsidiaries and joint ventures as well 
as independent contractors.

3. B. Standards for Determining Whether an Application is Required

    In addition to some minor grammatical and format changes, the FDIC 
is proposing a number of changes in this section of the SOP which 
pertains to determining whether an application under Section 19 is 
required. In the introductory paragraph of this section, the FDIC has 
included language addressing when an application will be considered by 
the FDIC which states that the FDIC will not consider an application 
unless all of the sentencing requirements associated with the 
conviction, or the conditions imposed by a pretrial diversion or 
similar program, are completed, and the court's decision must be 
considered final under the procedures of the applicable jurisdiction.
    The FDIC seeks comments on whether the requirement that an 
applicant completes the sentencing requirements of a conviction, or the 
conditions imposed by a program entry, and that the case is considered 
final are relevant

[[Page 809]]

factors to accepting an application under Section 19.
    In subsection B(1) ``Convictions'', the FDIC has added additional 
language to address questions regarding expungements. Previously, the 
FDIC simply stated that an expungement was considered a complete 
expungement only when the conviction of record was no longer accessible 
even by court order. However, it is clear that in recent times, the 
existence of such records cannot always be completely sealed or 
destroyed. If the expungement is intended to be complete under the law 
of the jurisdiction that issues the expungement, and the jurisdiction 
intends that no governmental body or court can use the prior conviction 
or program entry for any subsequent purpose, then the SOP makes clear 
that the fact that the records have not been timely destroyed, or that 
there exist copies of the records that are not covered by the order 
sealing or destroying them, will not prevent the expungement from being 
considered complete for the purposes of Section 19.
    The FDIC seeks comment on whether this interpretation would aid in 
determining if an expungement is complete.
    In this section, the FDIC also proposes language that treats 
certain convictions that have been set aside or reversed after the 
sentencing requirements have been completed the same as pretrial 
diversion or similar programs are treated, unless the reason that the 
conviction was set aside or reversed is based on a finding on the 
merits that the conviction was wrongful.
    Given the wide range or pretrial diversion and similar programs, 
the FDIC seeks comments on whether this language serves to properly 
include as pretrial diversion or similar programs, programs in 
jurisdictions that set aside or reverse convictions in a manner that, 
in effect, operates as a pretrial diversion or similar program.
    In subsection B(2) ``Pretrial Diversion or Similar Program'', the 
FDIC is also clarifying that whether a program constitutes a pretrial 
diversion or similar program is determined by relevant Federal, state 
or local law, and if that program is not so designated under applicable 
law, then the determination will be made by the FDIC on a case-by-case 
basis.
    The FDIC is seeking comments whether using some or all of the 
elements of a pretrial diversion program as cited in the SOP are 
appropriate for determining on a case-by-case basis whether a procedure 
is a similar program for the purposes of Section 19, and whether a 
determination that considers such elements is required under the 
statute.
    In subsection B(3) ``Dishonesty or Breach of Trust'', the FDIC 
proposes language that would allow certain minor drug convictions or 
program entries which currently require an application to fall within 
the de minimis exceptions to filing that are set out in subsection 
B(5).
    The FDIC seeks comments whether allowing the de minimis treatment 
for certain minor drug crimes would be beneficial.
    In subsection B(4) ``Youthful Offender Adjudgments'', the FDIC has 
added language confirming that an adjudication under ``youthful 
offender'' statutes is not covered by Section 19 at all and, therefore, 
is not a matter covered under the de minimis exception to the filing 
requirements.
    In subsection B(5) ``De Minimis Offenses'', the FDIC, based upon 
its experiences and past Section 19 applications that it has reviewed 
since the current SOP was adopted in 1998, has decided to create 
several additional conditions under which the de minimis exception to 
filing may apply, and has restructured the pertinent subsection. The 
subsection has been divided into two parts. The first (a) ``In 
General'', restates the current version of the de minimis exception to 
filing, and moves the current provision related to bad or insufficient 
funds checks into the second part of the subsection. The FDIC has also 
made one modification to the provision addressing imprisonment and/or 
fines. In order to clarify what the FDIC intends by the concept of jail 
time, the FDIC is including explanatory language which indicates that a 
significant restraint on a person's freedom of movement will be 
considered jail time. The intent is to address situations such as work 
release or other situations that allow a person's release to perform a 
specific function or functions, or a release in which a person must 
report continuously to a facility that is not itself a jail for some 
portion of the day or night.
    The FDIC is seeking comments as to whether this clarification of 
what constitutes jail time for the purposes of the SOP is useful and 
levels the playing field among those who are convicted.
    A second part of subsection (5), (b) ``Additional Applications of 
the De Minimis Exception to Filing'', includes an expanded version of 
the current provision related to bad or insufficient funds checks as 
well as two additional limited circumstances in which the de minimis 
exception to filing applies. The first new exception that the FDIC is 
proposing would create an age-based exception to the filing 
requirement. A person with a covered conviction or program entry that 
occurred when the individual was 21 or younger at the time of the 
conviction or program entry, who also meets the general de minimis 
exception to filing and who has completed all sentencing or program 
requirements, will qualify for this de minimis exception to filing if 
it least 30 months have passed prior to the date an application would 
otherwise be required.
    A second new de minimis exception to filing is proposed for 
convictions or program entries for small-dollar theft. The exception 
applies if the conviction or program entry is based on a small dollar 
theft of goods, services, and/or currency (or other monetary 
instrument) and the aggregate value of the goods, services and/or 
currency was $500 or less at the time of the conviction or program 
entry. Additionally, the individual must have only one conviction or 
program entry under Section 19, and five years must have passed since 
the conviction or program entry. Simple theft for the purposes of this 
exception to filing does not include burglary, forgery, robbery, 
embezzlement, identity theft and/or fraud. Additionally, if the 
conviction or program entry occurred when the individual was 21 or 
younger, then proposal reduces the five-year period to 30 months.
    The FDIC also proposes to modify the current de minimis exception 
to filing for convictions or program entries related to bad or 
insufficient funds checks, to cover multiple convictions or program 
entries for bad or insufficient funds checks, provided that the 
aggregate value of all the checks across all the convictions or program 
entries is $1,000 or less. The current requirement that there are no 
other convictions or program entries subject to Section 19, and that no 
insured financial institution or credit union was a payee on any of the 
checks, remains.
    Lastly, the FDIC proposes to add qualifying language that no 
conviction for a violation of certain Title 18 provisions, as set out 
in 12 U.S.C. 1829(a)(2), can qualify under any of the de minimis 
exceptions to filing that are set out in subsection (5).
    The FDIC is seeking comments regarding whether these expansions of 
the de minimis exceptions to filing are appropriate and reasonable, and 
whether individuals with the minor offenses covered in the expansion of 
the exceptions should be able to participate in the affairs of an 
insured institution without filing a Section 19 application.

[[Page 810]]

4. C. Procedures

    The FDIC has added language to this subsection clarifying that 
individual applicants file their application with the FDIC Regional 
Office covering the state where the person lives.

5. D. Evaluation of Section 19 Applications

    The FDIC has redrafted some of the factors set forth in the SOP for 
considering a Section 19 application to more closely follow the 
provisions for considering applications set forth in the FDIC's rules 
at 12 CFR 308.157. Additionally, the FDIC has noted that under the 
provision that allows the FDIC to consider other appropriate factors, 
the FDIC may contact the primary Federal and/or state regulator to aid 
in the evaluation of an application.
    The FDIC seeks comment on whether there remains a material 
inconsistency between the factors used in the proposed SOP and the 
regulation.
    Additionally, in this section, the FDIC has added clarifying 
language that states that the utilization of the evaluation factors 
related to the ten-year ban provision refers to the restriction in 12 
U.S.C. 1829(a)(2).
    Lastly, the FDIC is proposing to add clarifying language related to 
bank-sponsored applications that makes clear that changes in an 
individual's duties at the insured institution which filed a previously 
approved Section 19 application on that individual's behalf will 
require a new application. There is also a clarification that a new 
application will be required if an individual covered by a previously 
approved bank-sponsored application desires to participate in the 
affairs of another insured depository institution.
    The FDIC seeks comments on whether the changes to this subsection 
sufficiently clarify the requirement for previously approved bank-
sponsored applications--first, that the bank seek additional approval 
of the FDIC when the duties previously approved by the FDIC change and 
second, that a new application must be filed when the individual 
covered by the previous bank sponsored application wishes to work at a 
different insured institution.

III. Paperwork Reduction Act

    In accordance with section 3512 of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501 et seq., an agency may not conduct or sponsor, and 
a person is not required to respond to, a collection of information 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number. These modifications to the SOP for Section 19 of 
the FDI Act include clarification of reporting requirements in an 
existing FDIC information collection, entitled Application Pursuant to 
Section 19 of the Federal Deposit Insurance Act (3064-0018), that 
should result in a decrease in the number of applications filed. 
Specifically, the revised policy statement broadens the application of 
the de minimis exception to filing an application due to the minor 
nature of the offenses and the low risk that the covered party would 
pose to an insured institution based on the conviction or program 
entry. By modifying these provisions, the FDIC believes that there will 
be a reduction in the submission of applications where approval has 
been granted by virtue of the de minimis offenses exceptions to filing 
in the policy statement. In its last submission with OMB, the FDIC 
indicated that it will receive approximately 75 applications per year. 
The FDIC estimates that the revised SOP would reduce the number of 
applications filed each year by approximately 28 percent bringing the 
number of applications each year down to approximately 54. This change 
in burden will be submitted to OMB as a non-significant, nonmaterial 
change to an existing information collection. The estimated new burden 
for the information collection is as follows:
    Title: ``Application Pursuant to Section 19 of the Federal Deposit 
Insurance Act''.
    Affected Public: Insured depository institutions and individuals.
    OMB Number: 3064-0018.
    Estimated Number of Respondents: 54.
    Frequency of Response: On occasion.
    Average Time per Response: 16 hours.
    Estimated Annual Burden: 864 hours.
    Comments are invited on:
    (a) Whether this collection of information is necessary for the 
proper performance of the FDIC's functions, including whether the 
information has practical utility;
    (b) the accuracy of the estimates of the burden of the information 
collection, including the validity of the methodologies and assumptions 
used;
    (c) ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    All comments will become a matter of public record. Comments may be 
submitted to the FDIC by any of the following methods:
     https://www.FDIC.gov/regulations/laws/federal/.
     Email: [email protected] Include the name and number of 
the collection in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street), on business days between 7 a.m. and 5 p.m.
    A copy of the comment may also be submitted to the OMB Desk Officer 
for the FDIC, Office of Information and Regulatory Affairs, Office of 
Management and Budget, 725 17th Street NW, #10235, Washington, DC 
20503; by facsimile to (202) 395-5806; or by email to: 
[email protected], Attention, Federal Banking Agency Desk 
Officer. All comments should refer to the ``Application Pursuant to 
Section 19 of the Federal Deposit Insurance Act,'' OMB No. 3064-0018.

IV. Proposed Statement of Policy for Section 19

    For the reasons set forth above, the entire text of the proposed 
FDIC Statement of Policy for Section 19 is stated as follows.

FDIC Statement of Policy for Section 19 of the FDI Act

    Section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829) 
prohibits, without the prior written consent of the Federal Deposit 
Insurance Corporation (FDIC), a person convicted of any criminal 
offense involving dishonesty or breach of trust or money laundering 
(covered offenses), or who has agreed to enter into a pretrial 
diversion or similar program (program entry) in connection with a 
prosecution for such offense, from becoming or continuing as an 
institution-affiliated party, owning or controlling, directly or 
indirectly an insured depository institution (insured institution), or 
otherwise participating, directly or indirectly, in the conduct of the 
affairs of the insured institution. In addition, the law forbids an 
insured institution from permitting such a person to engage in any 
conduct or to continue any relationship prohibited by Section 19. It 
imposes a ten-year ban against the FDIC's consent for persons convicted 
of certain crimes enumerated in Title 18 of the United States Code, 
absent a motion by the FDIC and court approval.

[[Page 811]]

    Section 19 imposes a duty upon an insured institution to make a 
reasonable inquiry regarding an applicant'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. The FDIC believes that at a minimum, each insured institution 
should establish a screening process that provides the insured 
institution with information concerning any convictions or program 
entry pertaining to a job applicant. This would include, for example, 
the completion of a written employment application that requires a 
listing of all convictions and program entries. In the alternative, for 
the purposes of Section 19, an FDIC-supervised institution may extend a 
conditional offer of employment contingent on the completion of a 
background check satisfactory to the institution and to determine if 
the applicant is barred by Section 19. In such a case, the job 
applicant may not work for or be employed by the insured institution 
until such time that the applicant is determined to not be barred under 
Section 19. The FDIC will look to the circumstances of each situation 
for FDIC-supervised institutions to determine whether the inquiry is 
reasonable.
    Section 19 applies, by operation of law, as a statutory bar to 
participation absent the written consent of the FDIC. Upon notice of a 
conviction or program entry, an application must be filed seeking the 
FDIC's consent prior to the person's participation. The purpose of an 
application is to provide the applicant an opportunity to demonstrate 
that, notwithstanding the bar, a person is fit to participate in the 
conduct of the affairs of an insured institution without posing a risk 
to its safety and soundness or impairing public confidence in that 
institution. The burden is upon the applicant to establish that the 
application warrants approval.

A. Scope of Section 19

    Section 19 covers institution-affiliated parties, as defined by 12 
U.S.C. 1813(u) and others who are participants in the conduct of the 
affairs of an insured institution. This Statement of Policy applies 
only to insured institutions, their institution-affiliated parties, and 
those participating in the affairs of an insured depository 
institution. Therefore, all employees of an insured institution fall 
within the scope of Section 19. In addition, those deemed to be de 
facto employees as determined by the FDIC based upon generally 
applicable standards of employment law, will also be subject to Section 
19. Whether other persons who are not institution-affiliated parties 
are covered depends upon their degree of influence or control over the 
management or affairs of an insured institution. For example, Section 
19 would not apply to persons who are merely employees of an insured 
institution's holding company, but would apply to its directors and 
officers to the extent that they have the power to define and direct 
the management or affairs of the insured institution. Similarly, 
directors and officers of affiliates, subsidiaries or joint ventures of 
an insured institution or its holding company will be covered if they 
participate in the affairs of the insured institution or are in a 
position to influence or control the management or affairs of the 
insured institution. Typically, an independent contractor does not have 
a relationship with the insured institution other than the activity for 
which the insured institution has contracted. In terms of 
participation, an independent contractor who influences or controls the 
management or affairs of the insured institution would be covered by 
Section 19. Further, ``person'' for purposes of Section 19 means an 
individual, and does not include a corporation, firm or other business 
entity.
    Individuals who file an application with the FDIC under the 
provisions of Section 19 who also seek to participate in the affairs of 
a bank or savings and loan holding company may have to comply with any 
filing requirements of the Board of the Governors of the Federal 
Reserve System under 12 U.S.C. 1819(d) & (e).
    Section 19 specifically prohibits a person subject to its coverage 
from owning or controlling an insured institution. For purposes of 
defining ``control'' and ``ownership'' under Section 19, the FDIC has 
adopted the definition of ``control'' set forth in the Change in Bank 
Control Act (12 U.S.C. 1817(j)(8)(B)). A person will be deemed to 
exercise ``control'' if that person has the power to vote 25 percent or 
more of the voting shares of an insured institution (or 10 percent of 
the voting shares if no other person has more shares) or the ability to 
direct the management or policies of the insured institution. Under the 
same standards, person will be deemed to ``own'' an insured institution 
if that person owns 25 percent or more of the insured institution's 
voting stock, or 10 percent of the voting shares if no other person 
owns more. These standards would also apply to an individual acting in 
concert with others so as to have such ownership or control. Absent the 
FDIC's consent, persons subject to the prohibitions of Section 19 will 
be required to divest their control or ownership of shares above the 
foregoing limits.

B. Standards for Determining Whether an Application Is Required

    Except as indicated in paragraph (5), below, an application must be 
filed where there is present a conviction by a court of competent 
jurisdiction for a covered offense by any adult or minor treated as an 
adult, or where such person has entered a pretrial diversion or similar 
program regarding that offense. Before an application is considered by 
the FDIC, all of the sentencing requirements associated with a 
conviction or conditions imposed by the pretrial diversion, or similar 
program, including but not limited to, imprisonment, fines, condition 
of rehabilitation, and probation requirements, must be completed, and 
the case must be considered final by the procedures of the applicable 
jurisdiction.
    (1) Convictions. There must be present a conviction of record. 
Section 19 does not cover arrests, pending cases not brought to trial, 
acquittals, or any conviction that has been reversed on appeal. A 
conviction with regard to which an appeal is pending requires an 
application. A conviction for which a pardon has been granted will 
require an application. A conviction that has been completely expunged 
is not considered a conviction of record and will not require an 
application. For an expungement to be considered complete, no one, 
including law enforcement, can be permitted access to the record even 
by court order under the state or Federal law that was the basis of the 
expungement. Further, the jurisdiction issuing the expungement cannot 
permit the use of the expunged conviction in any subsequent proceeding 
or review of the person's character or fitness. Expungements of 
pretrial diversion or similar program entries will be treated the same 
as those for convictions. Convictions that are set aside or reversed 
after the applicant has completed sentencing will be treated consistent 
with pretrial diversions or similar programs unless the court records 
reflect that the underlying conviction was set aside based on a finding 
on the merits that such conviction was wrongful.
    (2) Pretrial Diversion or Similar Program. Program entry, whether 
formal or informal, is characterized by a suspension or eventual 
dismissal of charges or criminal prosecution often

[[Page 812]]

upon agreement by the accused to treatment, rehabilitation, 
restitution, or other noncriminal or non-punitive alternatives. Whether 
a program constitutes a pretrial diversion or similar program is 
determined by relevant Federal, state or local law, and, if not so 
designated under applicable law then the determination of whether it is 
a pretrial diversion or similar program will be made by the FDIC on a 
case-by-case basis. Program entries prior to November 29, 1990, are not 
covered by Section 19.
    (3) Dishonesty or Breach of Trust. The conviction or program entry 
must be for a criminal offense involving dishonesty, breach of trust or 
money laundering. ``Dishonesty'' means directly or indirectly to cheat 
or defraud; to cheat or defraud for monetary gain or its equivalent; or 
wrongfully to take property belonging to another in violation of any 
criminal statute. Dishonesty includes acts involving 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. ``Breach of trust'' means a wrongful act, 
use, misappropriation or omission with respect to any property or fund 
that has been committed to a person in a fiduciary or official 
capacity, or the misuse of one's official or fiduciary position to 
engage in a wrongful act, use, misappropriation or omission.
    Whether a crime involves dishonesty or breach of trust will be 
determined from the statutory elements of the crime itself. All 
convictions or program entries for offenses concerning the illegal 
manufacture, sale, distribution of, or trafficking in controlled 
substances shall require an application unless they fall within the 
provisions for de minimis offenses set out in (5) below.
    (4) Youthful Offender Adjudgments. An adjudgment by a court against 
a person as a ``youthful offender'' under any youth offender law, or 
any adjudgment as a ``juvenile delinquent'' by any court having 
jurisdiction over minors as defined by state law does not require an 
application. Such adjudications are not considered convictions for 
criminal offenses. Such adjudications do not constitute a matter 
covered under Section 19 and is not an offense or program entry for 
determining the applicability of the de minimis offenses exception to 
the filing of an application.
    (5) De minimis Offenses.
(a) In General
    Approval is automatically granted and an application will not be 
required where the covered offense is considered de minimis, because it 
meets all of the following criteria:
     There is only one conviction or program entry of record 
for a covered offense;
     The offense was punishable by imprisonment for a term of 
one year or less and/or a fine of $2,500 or less, and the individual 
served three (3) days or less of jail time. The FDIC considers jail 
time to include any significant restraint on an individual's freedom of 
movement which includes, as part of the restriction, confinement where 
the person may leave temporarily only to perform specific functions or 
during specified times periods or both.
     The conviction or program was entered at least five years 
prior to the date an application would otherwise be required; and
     The offense did not involve an insured depository 
institution or insured credit union.
(b) Additional Applications of the De Minimis Offenses Exception to 
Filing
Age at Time of Conviction or Program Entry
     A covered conviction or program entry of record that 
occurred when the individual was 21 years of age or younger at the time 
of conviction or program entry that otherwise meets the general de 
minimis criteria in (a) above, will be considered de minimis if the 
conviction or program entry was entered at least 30 months prior to the 
date an application would otherwise be required and all sentencing or 
program requirements have been met.
Convictions or Program Entries for Insufficient Funds Checks
     Convictions or program entries of record based on the 
writing of ``bad'' or insufficient funds check(s) shall be considered a 
de minimis offense under this provision and will not be considered as 
having involved an insured depository institution if the following 
applies:
     There is no other conviction or program entry subject to 
Section 19 and the aggregate total face value of all ``bad'' or 
insufficient funds check(s) cited across all the conviction(s) or 
program entry(ies) for bad or insufficient funds checks is $1,000 or 
less and;
     No insured depository institution or insured credit union 
was a payee on any of the ``bad'' or insufficient funds checks that 
were the basis of the conviction(s) or program entry(ies).
Convictions or Program Entries for Small-Dollar, Simple Theft
     A conviction or program entry based on a simple theft of 
goods, services and/or currency (or other monetary instrument) where 
the aggregate value of the currency, goods and/or services taken was 
$500 or less at the time of conviction or program entry, where the 
person has no other conviction or program entry under Section 19, and 
where it has been five years since the conviction or program entry (30 
months in the case of a person 21 or younger at the time of the 
conviction or program entry) is considered de minimis. Simple theft 
excludes burglary, forgery, robbery, identity theft, and fraud.
    Any person who meets the criteria under (5) above shall be covered 
by a fidelity bond to the same extent as others in similar positions, 
and shall disclose the presence of the conviction or program entry to 
all insured institutions in the affairs of which he or she intends to 
participate.
    Further, no conviction or program entry for a violation of the 
Title 18 sections set out in 12 U.S.C. 1829(a)(2) can qualify under any 
of the de minimis exceptions to filing set out in 5 above.
C. Procedures
    When an application is required, forms and instructions should be 
obtained from, and the application filed with, the appropriate FDIC 
Regional Director. The application must be filed by an insured 
institution on behalf of a person (bank-sponsored) unless the FDIC 
grants a waiver of that requirement (individual waiver). Such waivers 
will be considered on a case-by-case basis where substantial good cause 
for granting a waiver is shown. The appropriate Regional Office for an 
individual filing for a waiver of the institution filing requirement is 
the office covering the state where the person resides.
D. Evaluation of Section 19 Applications
    The essential criteria in assessing an application are whether the 
person has demonstrated his or her fitness to participate in the 
conduct of the affairs of an insured institution, and whether the 
affiliation, ownership, control, or participation by the person in the 
conduct of the affairs of the insured institution may constitute a 
threat to the safety and soundness of the insured institution or the 
interests of its depositors or threaten to impair public confidence in 
the insured institution. In determining the degree of risk, the FDIC

[[Page 813]]

will consider, in conjunction with the factors set out in 12 CFR 
308.157:
    (1) Whether the conviction or program entry and the specific nature 
and circumstances of the covered offense are a criminal offense under 
Section 19;
    (2) Whether the participation directly or indirectly by the person 
in any manner in the conduct of the affairs of the insured institution 
constitutes a threat to the safety and soundness of the insured 
institution or the interests of its depositors or threatens to impair 
public confidence in the insured institution;
    (3) Evidence of rehabilitation including the person's reputation 
since the conviction or program entry, the person's age at the time of 
conviction or program entry, and the time that has elapsed since the 
conviction or program entry;
    (4) The position to be held or the level of participation by the 
person at an insured institution;
    (5) The amount of influence and control the person will be able to 
exercise over the management or affairs of an insured institution;
    (6) The ability of management of the insured institution to 
supervise and control the person's activities;
    (7) The level of ownership the person will have of the insured 
institution;
    (8) The applicability of the insured institution's fidelity bond 
coverage to the person; and
    (9) Any additional factors in the specific case that appear 
relevant including but not limited to the opinion or position of the 
primary Federal and/or state regulator.
    The foregoing criteria will also be applied by the FDIC to 
determine whether the interests of justice are served in seeking an 
exception in the appropriate court when an application is made to 
terminate the ten-year ban under 12 U.S.C. 1829(a)(2) for certain 
Federal offenses, prior to its expiration date.
    Some applications can be approved without an extensive review 
because the person will not be in a position to constitute any 
substantial risk to the safety and soundness of the insured 
institution. Persons who will occupy clerical, maintenance, service, or 
purely administrative positions generally fall into this category. A 
more detailed analysis will be performed in the case of persons who 
will be in a position to influence or control the management or affairs 
of the insured institution. All approvals and orders will be subject to 
the condition that the person shall be covered by a fidelity bond to 
the same extent as others in similar positions. In cases in which a 
waiver of the institution filing requirement has been granted to an 
individual, approval of the application will also be conditioned upon 
that person disclosing the presence of the conviction(s) or program 
entry(ies) to all insured institutions in the affairs of which he or 
she wishes to participate. When deemed appropriate, bank sponsored 
applications are to allow the person to work in a specific job at a 
specific bank and may also be subject to the condition that the prior 
consent of the FDIC will be required for any proposed significant 
changes in the person's duties and/or responsibilities. In the case of 
bank applications such proposed changes may, in the discretion of the 
Regional Director, require a new application. In situations in which an 
approval has been granted for a person to participate in the affairs of 
a particular insured institution and who subsequently seeks to 
participate at another insured depository institution, another 
application must be submitted.

    By Order of the Board of Directors.

    Dated at Washington, DC, the 19th day of December 2017.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2017-28222 Filed 1-5-18; 8:45 am]
 BILLING CODE 6714-01-P