Incorporation of Existing Statement of Policy Regarding Requests for Participation in the Affairs of an Insured Depository Institution by Convicted Individuals, 68353-68363 [2019-26351]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 84, Number 241 (Monday, December 16, 2019)]
[Proposed Rules]
[Pages 68353-68363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26351]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303 and 308

RIN 3064-AF19


Incorporation of Existing Statement of Policy Regarding Requests 
for Participation in the Affairs of an Insured Depository Institution 
by Convicted Individuals

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (``FDIC'') proposes 
to revise the existing regulations requiring persons convicted of 
certain criminal offenses to obtain prior written consent before 
participating in the conduct of the affairs of any depository 
institution to incorporate the FDIC's existing Statement of Policy, and 
to amend the regulations setting forth the FDIC's procedures and 
standards applicable to an application to obtain the FDIC's prior 
written consent. Following the issuance of final regulations, the 
FDIC's existing Statement of Policy would be rescinded. The proposed 
incorporation of the Statement of Policy into the FDIC's regulations 
would provide for greater transparency as to its application, provide 
greater certainty as to the FDIC's application process and help both 
insured depository institutions and affected individuals to understand 
its impact and to potentially seek relief from its provisions.

DATES: Comments must be received on or before February 14, 2020.

ADDRESSES: You may submit comments, identified by RIN 3064-AF19, by any 
of the following methods:
     Agency Website: https://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on 
the Agency website.
     Email: [email protected]. Include RIN 3064-AF19 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/propose.html, 
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 Condon, Counsel, 
(202) 898-6536, John Dorsey, Acting Supervisory Counsel, (202) 898-
3807, or Andrea Winkler, Acting Assistant General Counsel, (202) 898-
3727 in the Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

    The policy objective of the proposed rule is to clarify the FDIC's 
application of section 19 of the FDI Act (section 19), clarify the 
application process for insured depository institutions and individuals 
who seek relief from the provisions of section 19, and seek public 
comment on additional proposals that could expand the scope of relief 
available for minor offenses. The FDIC has issued a Statement of Policy 
for Section 19 of the Federal Deposit Insurance Act (SOP), which 
provides the public with guidance relating to section 19 and the FDIC's 
application thereof. The current version of the SOP, with some 
modifications over time, has been a published resource for the public 
for over twenty years; however, some uncertainty may exist because the 
terms and procedures outlined in the SOP have not been adopted as 
regulations by the FDIC. To remove potential ambiguities about the 
FDIC's application of section 19 or the application process, the 
proposed rule will incorporate the current content of the SOP into its 
rules and procedures, thereby further clarifying its existing practices 
enforcing section 19. Additionally, the FDIC seeks comment from members 
of the public, including but not limited to, insured depository 
institutions, other financial institutions and companies, individual 
depositors and consumers, employees and prospective employees of 
insured depository institutions or other financial services 
institutions that have applied for or been granted relief from the 
provisions of section 19, and civil rights organizations, consumer 
groups, trade associations, and other members of the financial services 
industry regarding the scope of section 19, possible amendments to the 
relief process, the scope of the de minimis offense exemption, and the 
treatment of expunged criminal records.

II. Background

    The FDIC seeks to incorporate its SOP, which is issued pursuant to 
section 19 of the Federal Deposit Insurance Act,\1\ into its existing 
Procedures and Rules of Practice. 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. 
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.
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    \1\ 12 U.S.C. 1829.
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    The FDIC issued originally, after notice and comment, the current 
SOP in December 1998 \2\ 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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    \2\ 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 section 710 of the Financial 
Services Regulatory Relief Act of 2006,\3\ 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)

[[Page 68354]]

and the Office of Thrift Supervision (OTS), respectively.\4\ 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.\5\ 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.\6\
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    \3\ Public Law 109-351, 120 Stat. 1966,
    \4\ 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. 8, 2007) with correction issued at 73 FR 5270 (Oct. 
13, 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 (Dodd-Frank), 12 U.S.C. 5301 et seq., of savings and 
loan holding company jurisdiction to the Federal Reserve Board.
    \5\ 76 FR 28031 (May 13, 2011).
    \6\ 77 FR 74847 (Dec. 18, 2012).
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    The current version of the SOP was last revised by the Board of 
Directors in August of 2018,\7\ after notice and comment. The 2018 
revisions made a number of substantive changes in addition to some 
grammatical and format changes. The FDIC provided that institutions it 
supervised could make conditional offers of employment to individuals 
provided they were not hired until the institution had determined that 
they were not barred by section 19. The FDIC clarified when section 19 
applied to certain persons who are not employees, officers, directors 
or shareholders of an insured depository institution. The FDIC also 
deleted language referencing the change that expanded section 19's 
application to bank and savings and loan holding companies and simply 
noted 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) and (e).
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    \7\ 83 FR 38143 (Aug. 3, 2018).
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    In regard to considering applications, the FDIC 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 also added additional language to address questions 
regarding complete expungements and made clear that, 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 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 also added language that treats certain convictions that 
have been set aside or reversed after the sentencing requirements have 
been completed in the same manner 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. In addressing pretrial diversions or similar 
programs, the FDIC clarified how such programs would be identified by 
stating 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 also expanded the application of provisions for de minimis 
offenses where an application would not be required and it would be 
deemed approved. The general provisions for the application of de 
minimis were changed in two ways. The definition of jail time was 
clarified and the previous de minimis category for bad or insufficient 
fund checks was expanded and set out as a separate basis for applying 
the de minimis exception to filing. The FDIC created new exceptions to 
the filing requirement. First, a person with a covered conviction or 
program entry where the acts leading to the conviction or program entry 
occurred when the person was 21 or younger 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 at least 30 months have passed prior to the date an 
application would otherwise be required. Second, an exception to filing 
would apply when 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.
    The provision related to bad or insufficient funds checks was also 
expanded to apply to all such convictions or program entries provided 
that there was no other program entry for an offense covered by section 
19, the total amount of the checks did not exceed $1,000 and that no 
insured depository institution or credit union was a payee on any of 
the bad or insufficient funds checks. Lastly, the use of a fake or 
altered identification to purchase alcohol or to enter a premises where 
age appropriate identification was required would not require an 
application provided there was no other conviction or program entry for 
an offense covered by section 19.
    The FDIC also clarified 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 the SOP and that drug convictions or program entries which 
currently require an application can fall within the de minimis 
exceptions to filing that are set out in the SOP.
    The FDIC provided additional information directing individual 
applicants to file their application with the FDIC Regional Office 
covering the state where the person lives and also adjusted the 
language in the evaluations section of the SOP to more closely mirror 
the language in 12 CFR 308.157 as well as stated 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.
    Lastly, the FDIC added 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.

[[Page 68355]]

III. The Proposal

    The FDIC has determined that the current provisions of the SOP 
should be incorporated into its rules and procedures in order to 
provide for greater transparency as to its application, provide greater 
certainty as to the FDIC's application process and to aid both insured 
depository institutions and individuals who may be affected by section 
19 of the FDI Act to understand its impact and potentially seek relief 
from its provisions. The FDIC will also rescind those sections of 12 
CFR 308, subpart M, which would be duplicative of the changes needed to 
Part 303, subpart L, and will revise the remaining sections to insure 
conformity for any request for a hearing when an application under 
section 19 has been denied.
    Currently, 12 CFR part 303, subpart L provides only very basic 
information as to the need to file an application with the FDIC in 
order to obtain the written permission of the FDIC required by section 
19 so that the person may be employed by, or own or control, or 
participate in the affairs of an insured depository institution. 
Further, while some additional details about the filing process were 
set out in 12 CFR part 308, subpart M, the information was still not as 
complete as it could have been, and some parts of Part 308, subpart M 
were actually duplicative of what was in Part 303, subpart L. The 
better approach would be to describe the complete application process 
in Part 303, subpart L and amend Part 308, subpart M to address the 
procedures and rules that could be followed if an application is denied 
and a hearing is sought.
    Therefore, consistent with the foregoing, the FDIC is proposing to 
rescind subpart L of 12 CFR part 303, and replace and rename it with a 
new subpart and to revise and amend, as well as rename, subpart M of 
Part 308. While much of the SOP has been incorporated into the proposed 
revised subpart L of part 303, some adjustments to the language have 
been made to add clarification, correct grammar and style consistent 
with a regulation and, occasionally, reformatted to fit the regulatory 
scheme.

A. Revised Provisions of 12 CFR Part 303, Subpart L

    1. Sec.  303.220 What is section 19 of the FDI Act?
    This section combines portions of the scope section in the existing 
12 CFR 303.220 and the introduction part of the SOP. Paragraph (a) is 
the scope provisions from the existing Sec.  303.220. Paragraph (b) 
sets out the application of section 19 to insured depository 
institutions including the conditional offers of employment that FDIC 
supervised institutions may make as is in the existing SOP. Paragraph 
(c) comes from the SOP and addresses the need for an application.
    2. Sec.  303.221 Who is covered by section 19?
    This section identifies who is covered by section 19 and comes 
mainly from the existing SOP. Paragraph (a) defines institution 
affiliated parties and others who may fall within the scope of section 
19. Paragraph (b) defines the term ``person'' for the purposes of 
section 19 as an individual not a legal entity. Paragraph (c) addresses 
when a person is covered under 12 U.S.C. 1829(a) and must file an 
application with the FDIC even if the person is also covered under 12 
U.S.C. 1829(d) and (e), which would require an application approved by 
the Board of Governors of the Federal Reserve System for an individual 
at the bank or saving and loan holding company. Paragraph (d) defines 
when ``ownership'' or ``control'' results in the application of section 
19 to an individual or individuals who may be deemed in control of, or 
be deemed to be an owner of, an insured depository institution.
    3. Sec.  303.222 What offenses are covered under section 19?
    This section comes mainly from the SOP and addresses what is a 
criminal offense under section 19. Paragraph (a) defines when a 
criminal offense constitutes a crime of dishonesty or breach of trust. 
Paragraph (b) requires that, to determine if the criminal offense is 
one of dishonesty, breach of trust, or money laundering, the FDIC will 
look to the statutory elements of the criminal offense or to court 
decisions in the relevant jurisdiction that have found the criminal 
offense to be one of dishonesty, breach of trust or money laundering. 
Paragraph (c) requires an application for all drug offenses, except for 
simple possession, unless the criminal offense meets the criteria in 
Sec.  303.227 for not filing an application.
    4. Sec.  303.223 What constitutes a conviction under section 19?
    This section comes mainly from the SOP. Paragraph (a) addresses 
that there must have been a conviction and that section 19 does not 
apply to arrests, pending cases not brought to trial, or any conviction 
reversed on appeal unless the person has entered a pretrial diversion 
or similar program as set out in Sec.  303.224. Paragraph (b) addresses 
what constitutes a complete expungement for the purposes of section 19. 
Paragraph (c) excludes youthful offender adjudgments for minors from 
the scope of section 19.
    5. Sec.  303.224 What constitutes a pretrial diversion or similar 
program (a program entry) under section 19?
    This section comes mainly from the SOP. Paragraph (a) defines what 
constitutes a pretrial diversion or similar program and excludes 
program entries that occurred prior to November 29, 1990. Paragraph (b) 
states that expungements of program entry records will be treated the 
same as expungements of convictions.
    6. Sec.  303.225 What are the types of applications that can be 
filed?
    This section is a combination of the existing Sec.  303.221, Sec.  
308.158 and the SOP. Paragraph (a) establishes the institution filing 
requirement. Paragraph (b) establishes the procedure to apply when an 
insured depository institution will not file an application for an 
individual.
    7. Sec.  303.226 When is an application to be filed?
    This section comes mainly from the SOP. This section states when an 
application is to be filed excepting from its requirement those covered 
offenses which are considered de minimis under subpart L. An 
application will not be considered by the FDIC until all sentencing 
requirements associated with a conviction have been met or all 
requirements of the program entry have been completed.
    8. Sec.  303.227 When is an application not required for a covered 
conviction or program entry?
    This section comes mainly from the SOP. Paragraph (a) establishes 
the general criteria for de minimis convictions or program entries for 
which, if the criteria are met, the person is deemed automatically 
approved and no application will be required. Paragraph (b) establishes 
certain other specific exceptions to the filing requirement which if 
met will be deemed automatically approved. Paragraph (b)(1) shortens 
the five- year waiting period under the general criteria to 30 months 
when all the elements of the offense occurred before the person is age 
21 or younger and the person meets the criteria established by that 
exception to filing. Paragraph (b)(2) establishes the criteria, which 
if met, provides that certain convictions or program entries for bad or 
insufficient funds checks will not require an application. Paragraph 
(b)(3) establishes the criteria, which if met, provides that certain 
small dollar simple theft convictions or program entries of $500 or 
less will not require an application. Excluded from this exception to 
filing are convictions or program entries for burglary, forgery,

[[Page 68356]]

identity theft, and fraud. Paragraph (b)(5) establishes the criteria 
which, if met, provides that the use of a fake or false identification 
by a person under the legal age to purchase alcohol or used to enter 
premises where alcohol is served but where age appropriate 
identification is required to enter the premises will not require an 
application. Paragraph (c) requires that, for any case where the person 
is able to avail themselves of the de minimis exception to filing, they 
must disclose the convictions or program entries to the insured 
depository institution and must qualify for a fidelity bond to the same 
extent as others in a similar position. Paragraph (d) states that any 
conviction or program entry for criminal offenses under Title 18 set 
out in 12 U.S.C. 1829(a)(2) cannot qualify for de minimis exception to 
filing an application.
    9. Sec.  303.228 How to file an application.
    This section comes from the SOP. This section provides the 
requirement that an insured depository institution is to file an 
application on behalf of an individual under section 19 to participate 
in its affairs unless the FDIC grants the individual a waiver for good 
cause shown to file on their own behalf. Insured depository 
institutions should file with the FDIC's Regional Office where the 
institution's home office is located and any waiver and application on 
behalf of an individual should be filed with the FDIC's Regional Office 
where the person lives.
    10. Sec.  303.229 How an application is evaluated.
    This section comes from a combination of Sec.  308.157 and the SOP. 
Paragraph (a) sets out the ultimate determination the FDIC will make as 
to the level of risk the applicant poses to an insured depository 
institution and whether it will consent to allow the person to 
participate in an insured depository institution's affairs. In 
evaluating the risk posed by the person's participation the FDIC has 
established nine factors that it will look at, including other factors 
that might be relevant to a particular application. Paragraph (b) 
states that the question of whether a person was guilty of the offense 
for which the person was convicted, or had a program entry for, is not 
an issue for Part 303, subpart L or for part 308, subpart M. Paragraph 
(c) states that it will apply the factors and determination used in 
paragraph (a) when evaluating an application which is made to terminate 
the ten-year ban in 12 U.S.C. 1829(a)(2). Paragraph (d) provides that 
the person must be bonded the same as others in that position and the 
person must disclose the covered conviction or program entry to any 
insured depository institution in which they intend to participate. 
Paragraph (e) provides that for bank-sponsored applications the 
approval is to work a specific job at a specific bank and that the bank 
may be required to seek permission from the FDIC before there is a 
significant change in a person's duties and/or responsibilities and the 
Regional Director may request a new application. Approval to work at a 
specific insured depository institution is limited to that institution 
and a new application is required to work at another insured depository 
institution.
    11. Sec.  303.230 What will the FDIC do if the application is 
denied?
    This section is a combination of the current Sec. Sec.  303.223, 
308.157 and 308.159. Paragraph (a) provides that the FDIC will provide 
a written denial which will summarize or cite the relevant factors from 
the proposed Sec.  303.229. Paragraph (b) provides that the applicant 
can file a written request for a hearing pursuant to Part 308, subpart 
M within 60 days of the denial.
    12. Sec.  303.231 Waiting time for a subsequent application if an 
application is denied.
    This section comes mainly from Sec.  308.158 and was clarified so 
that an applicant will need to wait one year from the date of the 
denial or decision of the FDIC Board, or its designee.

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

    1. Sec.  308.156 Scope.
    This section has been revised to reflect its application to denials 
that are issued pursuant to 12 CFR part 303, subpart L
    2. Sec.  308.157 Relevant considerations.
    This section will be rescinded.
    3. Sec.  308.158 Filing Papers and effective date.
    This section will be rescinded.
    4. Sec.  308.159 Denial of Application.
    This section has been revised to reflect the outcome of the 
application process in Part 303, subpart L and to clarify the procedure 
by which a hearing may be requested. It will be renumbered as Sec.  
308.157.
    5. Sec.  308.160 Hearings.
    This section will remain as it currently exists but will be 
renumbered as Sec.  308.158.
    After renumbering, Sec. Sec.  308.159 and 309.160 will be reserved.

IV. Expected Effects

    The FDIC expects the proposed rule to have relatively small effects 
on the public and insured institutions. The FDIC currently insures 
5,312 depository institutions which could be affected by the proposed 
rule.\8\ Additionally, as discussed previously, the proposed rule would 
apply to certain persons covered by the provisions of section 19 who 
are or wish to become employees, officers, directors or shareholders of 
an insured depository institution. In the period from 2014 through 
2018, the FDIC received 21 bank-sponsored section 19 applications, an 
average of four per year. Additionally, the FDIC received 500 
individual section 19 applications during the same period, an average 
100 per year.\9\ Therefore, the FDIC estimates that the proposed rule 
would affect at least four FDIC-insured depository institutions, and 
100 individuals per year.
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    \8\ FDIC Call Report Data, June 30, 2019.
    \9\ Application Tracking System.
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    As described previously, the proposed rule incorporates the current 
content of the SOP into the FDIC's regulations; therefore, it poses no 
substantive changes for potential applicants, either insured 
institutions or individuals. Additionally, although codifying the 
current content of the SOP into the FDIC's regulations could change 
enforcement of that content, in practice it is unlikely to pose any 
substantive effect on covered entities and individuals. The FDIC 
considers individuals who have been convicted of a crime of dishonesty, 
breach of trust, or money laundering, who participate in the affairs of 
an insured depository institution without the prior written consent of 
the FDIC, to be violations of section 19, and will continue to do so if 
the proposed rule is adopted in its current form. Therefore, the 
proposed rule is unlikely to pose any substantive change in the FDIC's 
enforcement of section 19. As such, removing the existing regulation 12 
CFR part 303, subpart L and establishing a new subpart L, which 
incorporates the FDIC's existing SOP, as well as renaming, removing, 
and amending certain provisions of 12 CFR part 308, subpart M is 
unlikely to have any substantive effects on the current section 19 
application process or the FDIC's enforcement of section 19.
    To the extent that the current content of the FDIC's SOP conveys 
any ambiguity as to the FDIC's application of section 19 or the 
application process, the proposed rule would benefit covered entities 
and individuals by further clarifying this topic and process. However, 
the FDIC believes any such effects are likely to be relatively small 
because the FDIC has received bank-sponsored section 19 applications 
from less than 0.08 percent of FDIC-insured

[[Page 68357]]

institutions, per year, on average,\10\ or section 19 applications from 
individuals who represent less than 0.004 percent of people employed in 
the credit intermediation sector of the U.S. economy.\11\
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    \10\ (4/5312) * 100 = 0.075 percent.
    \11\ According to the Bureau of Labor Statistics (BLS) 2,631,500 
people were employed in the Credit Intermediation & Related 
Activities (NAICS 522000) sector in the second quarter of 2019. 
(100/2631500) * 100 = 0.0038 percent. See Bureau of Labor 
Statistics, Current Employment Statistics, Credit Intermediation and 
Related Activities: NAICS 522, June 2019, Extracted on November 20, 
2019 (8:20:49 p.m.).
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    The FDIC invites comments on all aspects of this analysis. In 
particular, would the proposed rule have any costs or benefits that the 
FDIC has not identified?

V. Alternatives

    The FDIC considered one alternative to the proposed rule but 
believes that the proposed amendments represent the most appropriate 
option for covered entities and individuals. The FDIC considered the 
status quo alternative of retaining the existing section 19 SOP and 
regulations.\12\ However, the FDIC believes that the proposed rule 
further clarifies the FDIC's application of section 19 of the FDI Act 
and the application process for insured depository institutions and 
individuals who seek relief from its provisions, while posing no 
substantive costs, relative to the status quo alternative.
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    \12\ 12 CFR part 303, subpart L and 12 CFR part 308, subpart M.
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    The FDIC invites comments on its consideration of alternatives. In 
particular, are there other alternatives that the FDIC should consider?

VI. Request for Comments

    (1) The FDIC seeks comment on all aspects of its approach to 
section 19 and more specifically in the questions that follow.
    (2) The FDIC has received previous inquiries and comments from the 
public regarding section 19's scope that catches a number of minor 
offenses in perpetuity. In response to these concerns, the FDIC has 
established de minimis criteria, which have been expanded in 2007, 
2011, 2012, and 2018. The FDIC continues to process low-risk cases 
that, in our experience, present a high likelihood of approval. For 
this reason, the FDIC seeks comments regarding the de minimis criteria 
for offenses that represent low-risk to the Deposit Insurance Fund 
while maintaining a balanced approach of reducing regulatory burden to 
the industry and individuals while maintaining the integrity of section 
19.
    (3) One of the specific de minimis categories involves the use of a 
fake identification for a person under the age of 21 in an attempt to 
purchase alcohol. The FDIC seeks comments on whether the de minimis 
criteria should be expanded and what if any additional situations 
involving low risk convictions should be covered by this category.
    (4) The FDIC seeks comment on whether the five-year post-conviction 
cooling off period should be modified for certain offenses, and whether 
additional timeframes should be considered for various offenses.
    (5) The FDIC has received previous inquiries and comments from the 
public related to expungements of convictions. Expungements have been a 
source of confusion for the industry and individual applicants. The 
FDIC has attempted to address these concerns by clarifying the term 
``complete expungement'' for section 19 purposes and has made changes 
to the SOP in 2011 and 2018. However, despite these changes, 
expungements continue to be a source of confusion. For this reason, the 
FDIC seeks comments regarding the applicability of section 19 to 
expungements.
    Written comments must be received by the FDIC no later than 
February 14, 2020.

VII. Regulatory Analysis and Procedure

A. The Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
(``PRA''), \13\ the FDIC may not conduct or sponsor, and the respondent 
is not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (``OMB'') 
control number. The proposed rule will not create any new or revise any 
existing information collections pursuant to the PRA. Therefore, no 
information collection request will be submitted to the OMB for review.
---------------------------------------------------------------------------

    \13\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') generally requires an 
agency, in connection with a proposed rule, to prepare and make 
available for public comment an initial regulatory flexibility analysis 
that describes the impact of a rule on small entities.\14\ However, a 
regulatory flexibility analysis is not required if the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities. The Small Business Administration 
(``SBA'') has defined ``small entities'' to include banking 
organizations with total assets of less than or equal to $600 million 
that are independently owned and operated or owned by a holding company 
with less than or equal to $600 million in total assets.\15\ Generally, 
the FDIC considers a significant effect to be a quantified effect in 
excess of 5 percent of total annual salaries and benefits per 
institution, or 2.5 percent of total noninterest expenses. The FDIC 
believes that effects in excess of these thresholds typically represent 
significant effects for FDIC-supervised institutions. As discussed 
further below, the FDIC certifies that, if adopted, this proposed rule 
will not have a significant economic impact on a substantial number of 
FDIC-supervised small entities.
---------------------------------------------------------------------------

    \14\ 5 U.S.C. 601 et seq.
    \15\ The SBA defines a small banking organization as having $600 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See 13 CFR 121.201 
(as amended by 84 FR 34261 (July 18, 2019), effective August 19, 
2019). In its determination, the ``SBA counts the receipts, 
employees, or other measure of size of the concern whose size is at 
issue and all of its domestic and foreign affiliates.'' See 13 CFR 
121.103. Following these regulations, the FDIC uses a covered 
entity's affiliated and acquired assets, averaged over the preceding 
four quarters, to determine whether the covered entity is ``small'' 
for the purposes of RFA.
---------------------------------------------------------------------------

    The FDIC insures 5,312 depository institutions, of which 3,947 are 
defined as small banking organizations according to the RFA.\16\ In the 
period from 2014 through 2018, the FDIC received 15 bank-sponsored 
section 19 applications from small, FDIC-insured institutions, an 
average of three per year. Additionally, the FDIC received 500 section 
19 applications from individuals during the same period, an average 100 
per year.\17\ To determine the maximum number of small, FDIC-supervised 
institutions who could be affected by the proposed rule this analysis 
assumes that each applicant is seeking employment at a different bank, 
and that each bank is a small, FDIC-insured institution. Based on these 
assumptions it follows that annual section 19 applications can affect 
at most 103 (2.6 percent) small, FDIC-insured institutions on average, 
annually. \18\ However, in the FDIC's experience, section 19 
applications from individuals are compelled by the applicant's intent 
to seek employment at FDIC-insured institutions that are generally not 
small. Therefore, the FDIC believes that the number of small, FDIC-
insured institutions affected by the proposed rule is likely to be 
smaller

[[Page 68358]]

than 103. The FDIC estimates that the proposed rule would affect at 
least three, but no more than 103 small, FDIC-insured institutions, per 
year.
---------------------------------------------------------------------------

    \16\ FDIC Call Report, June 30, 2019.
    \17\ Application Tracking System.
    \18\ (103/3947) *100 = 2.61 percent.
---------------------------------------------------------------------------

    As described previously, the proposed rule incorporates the current 
content of the SOP into the FDIC's regulations; therefore, it poses no 
substantive changes for potential applicants. Additionally, although 
codifying the current content of the SOP into the FDIC's regulations 
could change enforcement of that content, in practice it is unlikely to 
pose any substantive effect on covered entities and individuals. The 
FDIC considers individuals who have been convicted of a crime of 
dishonesty, breach of trust, or money laundering, who participate in 
the affairs of an insured depository institution without the prior 
written consent of the FDIC, to be violations of section 19, and will 
continue to do so if the proposed rule is adopted in its current form. 
Therefore, the proposed rule is unlikely to pose any substantive change 
in the FDIC's enforcement of section 19. As such, removing the existing 
regulation at 12 CFR part 303, subpart L and establishing a new subpart 
L which incorporates the FDIC's existing SOP, as well as renaming, 
removing, and amending certain provisions of 12 CFR part 308, subpart M 
is unlikely to have any substantive effects on the current section 19 
application process or the FDIC's enforcement of section 19 for small, 
FDIC-insured institutions.
    To the extent that the current content of the SOP conveys any 
ambiguity as to the FDIC's application of section 19 or the application 
process, the proposed rule would benefit covered entities by further 
clarifying this topic and process. However, the FDIC believes any such 
effects are likely to be relatively small because section 19 
applications received by the FDIC represent at most 2.6 percent of 
small, FDIC-insured institutions, per year, on average.
    Based on the information above, the FDIC certifies that the 
proposed rule would not have a significant economic impact on a 
substantial number of small entities.
    The FDIC invites comments on all aspects of the supporting 
information provided in this section, and in particular, whether the 
proposed rule would have any significant effects on small entities that 
the FDIC has not identified.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \19\ requires each 
Federal banking agency to use plain language in all of its proposed and 
final rules published after January 1, 2000. As a Federal banking 
agency subject to the provisions of this section, the FDIC has sought 
to present the proposed rule in a simple and straightforward manner. 
The FDIC invites comments on whether the proposal is clearly stated and 
effectively organized, and how the FDIC might make the proposal easier 
to understand. For example:
---------------------------------------------------------------------------

    \19\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

     Has the FDIC organized the material to suit your needs? If 
not, how could it present the rule more clearly?
     Have we clearly stated the requirements of the rule? If 
not, how could the rule be more clearly stated?
     Does the rule contain technical jargon that is not clear? 
If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would make the regulation easier to 
understand?
     What else could we do to make the regulation easier to 
understand?

D. Riegle Community Development and Regulatory Improvement Act of 1994

    The Riegle Community Development and Regulatory Improvement Act of 
1994 (``RCDRIA'') requires that each Federal banking agency, in 
determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on insured depository institutions, 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such regulations would 
place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations. In addition, new regulations and 
amendments to regulations that impose additional reporting, disclosure, 
or other new requirements on insured depository institutions generally 
must take effect on the first day of a calendar quarter that begins on 
or after the date on which the regulations are published in final 
form.\20\ The FDIC invites comments that further will inform its 
consideration of RCDRIA.
---------------------------------------------------------------------------

    \20\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 303

    Administrative practice and procedure, section 19 of the FDI Act 
(consent to service of persons convicted of certain criminal offenses).

12 CFR Part 308

    Rules of practice and procedure, procedures and standards 
applicable to an application pursuant to section 19.

    For the reasons stated in the preamble and under the authority of 
12 U.S.C. 1819 (Seventh and Tenth), the Federal Deposit Insurance 
Corporation proposes to amend parts 303 and 308 of title 12 of the Code 
of Federal Regulations as follows:

PART 303--FILING PROCEDURES

0
1. The authority citation for Part 303 continues to read as follows:

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

0
2. Revise Part 303, Subpart L as follows:
Subpart L--Section 19 of the FDI Act (Consent to Service of Persons 
Convicted of, or Who Have Program Entries for, Certain Criminal 
Offenses)
Sec.
303.220 What is section 19 of the FDI Act?
303.221 Who is covered by section 19?
303.222 What offenses are covered under section 19?
303.223 What constitutes a conviction under section 19?
303.224 What constitutes a pretrial diversion or similar program 
(program entry) under section 19?
303.225 What are the types of applications that can be filed?
303.226 When must an application to be filed?
303.227 When is an application not required for a covered offense or 
program entry (de minimis offenses)?
303.228 How to file an application.
303.229 How an application is evaluated.
303.230 What will the FDIC do if the application is denied?
303.231 Waiting time for a subsequent application if an application 
is denied.

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


Sec.  303.220  What is section 19 of the FDI Act?

    (a) This subpart covers applications under section 19 of the 
Federal Deposit Insurance Act, 12 U.S.C. 1829 (FDI Act). Under section 
19, any person who has been convicted of any criminal offense involving 
dishonesty, breach of trust, or money laundering, or has agreed to 
enter into a pretrial diversion or similar program (program entry) in 
connection

[[Page 68359]]

with a prosecution for such offense, may not become, or continue as, an 
institution-affiliated party of 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 without the prior written 
consent of the FDIC.
    (b) In addition, the law bars an insured depository institution 
from permitting such a person to engage in any conduct or to continue 
any relationship prohibited by section 19. Insured depository 
institutions should therefore make a reasonable inquiry regarding an 
applicant's history to insure that a person who has a conviction or 
program entry covered by the provisions of section 19 is not hired or 
permitted to participate in its affairs without the written consent of 
the FDIC issued under this subpart. FDIC supervised insured depository 
institutions 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 under section 19 but the 
job applicant may not work for, be employed by or otherwise participate 
in the affairs of the insured depository institution until the insured 
depository institution has determined that the applicant is not barred 
under section 19.
    (c) If there is a conviction or program entry covered by the bar of 
section 19, an application under this subpart must be filed seeking the 
FDIC's consent to become, or to continue as, an institution-affiliated 
party, to own or control, directly or indirectly, an insured depository 
institution or to otherwise participate, directly or indirectly, in the 
affairs of the insured depository institution. The application must be 
filed, and consented to, prior to serving in any of the foregoing 
capacities unless such application is not required under the subsequent 
provisions of this subpart. The purpose of an application is to provide 
the applicant an opportunity to demonstrate that, notwithstanding the 
bar, a person is fit to participate in the conduct of the affairs of an 
insured depository 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.


Sec.  303.221  Who is covered by section 19?

    (a) 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 depository institution. Therefore, all 
employees of an insured depository institution that falls within the 
scope of section 19, including de facto employees, as determined by the 
FDIC based upon generally applicable standards of employment law, will 
also be subject to section 19. Whether other persons who are not 
institution-affiliated parties are covered depends upon their degree of 
influence or control over the management or affairs of an insured 
depository institution. In the context of the FDIC's application of 
section 19, coverage would apply to an insured depository institution's 
holding company's directors and officers to the extent that they have 
the power to define and direct the management or affairs of an insured 
depository institution. Similarly, directors and officers of 
affiliates, subsidiaries or joint ventures of an insured depository 
institution or its holding company will be covered if they participate 
in the affairs of the insured depository 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 depository institution other than the 
activity for which the institution has contracted. An independent 
contractor who influences or controls the management or affairs of the 
insured depository institution would be covered by section 19.
    (b) The term ``person,'' for purposes of section 19, means an 
individual, and does not include a corporation, firm or other business 
entity.
    (c) Individuals who file an application with the FDIC under the 
provisions of section 19 who also seek to participate in the affairs of 
a bank or savings and loan holding company may have to comply with any 
filing requirements of the Board of the Governors of the Federal 
Reserve System under 12 U.S.C. 1829(d) and (e).
    (d) Section 19 specifically prohibits a person subject to its 
provisions from owning or controlling an insured depository 
institution. The terms ``control'' and ``ownership'' under section 19, 
shall have the meaning given to the term ``control'' 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 depository 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 institution. Under 
the same standards, a person will be deemed to ``own'' an insured 
depository institution if that person owns 25 percent or more of the 
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.


Sec.  303.222  What offenses are covered under section 19?

    (a) 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 includes offenses that 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.
    (b) Whether a crime involves dishonesty, breach of trust or money 
laundering will be determined from the statutory elements of the 
offense itself or from court determinations that the statutory 
provisions of the offense involve dishonesty, breach of trust or money 
laundering.
    (c) All convictions or program entries for offenses concerning the 
illegal manufacture, sale, distribution of, or trafficking in 
controlled substances shall require an application unless no 
application is required under this subpart. Convictions or program 
entries for criminal offenses involving the simple possession of a 
controlled substance are not covered under section 19.


Sec.  303.223  What constitutes a conviction under section 19?

    (a) Convictions requiring an application. There must be a 
conviction of record. Section 19 does not cover arrests, pending cases 
not brought to trial, acquittals, or any conviction that has been 
reversed on appeal unless the person has entered a pretrial diversion

[[Page 68360]]

program, or similar program, as set out Sec.  303.224. 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. 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. A conviction that has 
been completely expunged is not considered a conviction of record and 
will not require an application.
    (b) Complete expungements. If an order of expungement has been 
issued in regard to a conviction and it is intended by the language in 
the order itself, or in the legislative provisions under which the 
order was issued, to be a complete expungement, then the jurisdiction, 
either in the order or the underlying legislative provisions, forbids 
the conviction or program entry to be used for any subsequent purpose 
including, but not limited to, an evaluation of a person's fitness or 
character. The failure to destroy or seal the records will not prevent 
the expungement from being considered complete for the purposes of 
section 19 in such a case.
    (c) Youthful offenders. An adjudication by a court against a person 
as a ``youthful offender'' under any youth offender law applicable to 
minors as defined by state 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 an adjudication does 
not constitute a matter covered under section 19 and is not a 
conviction or program entry for determining the applicability of 
section 303.227.


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

    (a) A program entry is characterized by a suspension or eventual 
dismissal or reversal of charges or criminal prosecution often upon 
agreement, whether formal or informal, 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.
    (b) Expungements of pretrial diversion or similar program entries 
will be treated the same as those for convictions.


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

    (a) Institution filing requirement (bank-sponsored applications). 
Applications are required to be filed by the insured depository 
institution which intends for a person covered by the provisions of 
section 19 to participate in its affairs. Bank-sponsored applications 
are reviewed, as required by this subpart, by the appropriate FDIC 
Regional Office as required by this subpart and may be approved or 
denied by the Regional Office pursuant to delegated authority. A denial 
of an application must be with the certification of the General Counsel 
or designee that the denial is consistent with purposes of section 19.
    (b) Waiver applications. If an insured depository institution does 
not file an application regarding an individual, the individual may 
file a request for a waiver of the institution filing requirement. Such 
a waiver application shall be filed with the appropriate Regional 
Office and shall set forth substantial good cause why the application 
should be granted. The Director of the Division of Risk Management 
Supervision, or designee, may grant or deny applications requesting 
waivers of the institution filing requirement. The authority delegated 
under this section shall be exercised only upon the concurrent 
certification of the General Counsel, or designee, that the action to 
be taken is not inconsistent with section 19 of the FDI Act.


Sec.  303.226  When must an application to be filed?

    Except for situations in which no application is required under 
this subpart, an application must be filed when 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 when 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. The FDIC's 
application forms as well as additional information concerning section 
19 can be accessed at the FDIC's regional offices or on the FDIC 
website at: https://www.fdic.gov/regulations/laws/forms/section19.html.


Sec.  303.227  When is an application not required for a covered 
offense or program entry (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, by meeting all of the following criteria:
    (1) There is only one conviction or program entry of record for a 
covered offense;
    (2) 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 to a 
specific facility or building on a continuous basis where the person 
may leave temporarily only to perform specific functions or during 
specified times periods or both. The definition is not intended to 
include those on probation or parole who may be restricted to a 
particular jurisdiction, or who must report occasionally to an 
individual or to a specified location;
    (3) The conviction or program was entered at least five years prior 
to the date an application would otherwise be required; and
    (4) The offense did not involve an insured depository institution 
or insured credit union.
    (b) Other types of offenses for which the de minimis exception 
applies and no application is required.
    (1) Age of person at time of covered offense. If the actions that 
resulted in a covered conviction or program entry of record all 
occurred when the individual was 21 years of age or younger, then a 
subsequent 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.
    (2) 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 de minimis 
offenses under this provision

[[Page 68361]]

and will not be considered as involving an insured depository 
institution if the following applies:
    (i) 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
    (ii) 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).
    (3) 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, where it has 
been five years since the conviction or program entry (30 months in the 
case of a person 21 or younger as described above) and which does not 
involve an insured depository financial institution or insured credit 
union is considered de minimis. Simple theft excludes burglary, 
forgery, robbery, identity theft, and fraud.
    (4) Convictions or program entries for the use of a fake, false or 
altered identification card. The use of a fake, false or altered 
identification card by a person under the legal age for the purpose of 
obtaining or purchasing alcohol, or used for the purpose of entering a 
premise where alcohol is served but for which age appropriate 
identification is required, provided that there is no other conviction 
or program entry for a covered offense, will be considered de minimis.
    (c) Fidelity bond coverage and disclosure to institutions. Any 
person who meets the criteria under this section shall be covered by a 
fidelity bond to the same extent as others in similar positions, and 
shall disclose the presence of the conviction or program entry to all 
insured depository institutions in the affairs of which he or she 
intends to participate.
    (d) Non-qualifying convictions or program entries. No conviction or 
program entry for a violation of the Title 18 sections set out in 12 
U.S.C. 1829(a)(2) can qualify under any of the de minimis exceptions to 
filing set out in this section.


Sec.  303.228  How to file an application.

    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 depository 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. A person seeking an individual waiver may request the waiver 
when filing an application on their own behalf. The appropriate 
Regional Office for an bank-sponsored application is the office 
covering the state where the insured depository institution's bank's 
home office is located. 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. States covered 
by each FDIC Regional Office can be located on the FDIC's home page in 
the contacts section.


Sec.  303.229  How an application is evaluated.

    (a) The ultimate determination 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 depository institution, and 
whether the affiliation, ownership, control or participation by the 
person in the conduct of the affairs of the institution may constitute 
a threat to the safety and soundness of the institution or the 
interests of its depositors or threaten to impair public confidence in 
the institution. In determining the degree of risk, the FDIC will 
consider:
    (1) Whether the conviction or program entry into a pretrial or 
similar program is for a criminal offense involving dishonesty, breach 
of trust or money laundering and the specific nature and circumstances 
of the offense;
    (2) Whether the participation directly or indirectly by the person 
in any manner in the conduct of the affairs of the insured depository 
institution constitutes a threat to the safety and soundness of the 
institution or the interests of its depositors or threatens to impair 
public confidence in the institution;
    (3) Evidence of rehabilitation including the person's reputation 
since the conviction or program entry, employment history, 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 depository institution;
    (5) The amount of influence and control the person will be able to 
exercise over the operation, management or affairs of an insured 
depository institution;
    (6) The ability of management of the insured depository institution 
to supervise and control the person's activities;
    (7) The level of ownership or control the person will have at an 
insured depository institution;
    (8) The applicability of the insured depository institution's 
fidelity bond coverage to the person; and
    (9) Any additional factors in the specific case that appear 
relevant to the application or the applicant including, but not limited 
to, the opinion or position of the primary Federal and/or state 
regulator.
    (b) The question of whether a person, who was convicted of a crime 
or who agreed to a program entry, was guilty of that crime shall not be 
at issue in a proceeding under this subpart or under 12 CFR part 308, 
subpart M.
    (c) The foregoing factors will also be applied by the FDIC to 
determine whether the interests of justice are served in seeking an 
exception in the appropriate court when an application is made to 
terminate the ten-year ban prior to its expiration date under 12 U.S.C. 
1829(a)(2) for certain Federal offenses.
    (d) 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 depository institutions in the affairs of which he or she 
wishes to participate.
    (e) 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 sponsored bank 
applications such proposed changes may, in the discretion of the 
Regional Director, require a new application.
    (f) In situations in which an approval has been granted for a 
person to participate in the affairs of a particular insured depository 
institution and who subsequently seeks to participate at another 
insured depository institution, another application must be submitted 
and approved by the FDIC prior to the

[[Page 68362]]

person participating in the affairs of the other insured depository 
institution.


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

    (a) The FDIC will inform the applicant in writing that the 
application has been denied and summarize or cite the relevant 
considerations specified in Sec.  303.229 of this subpart.
    (b) The denial will also notify the applicant that a written 
request for a hearing under 12 CFR part 308, subpart M may be filed 
with the Executive Secretary within 60 days after the denial. The 
request for a hearing must include the relief desired, the grounds 
supporting the request for relief, and any supporting evidence.


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

    An application pursuant to section 19 may be made in writing at any 
time more than one year after the issuance of a decision denying an 
application pursuant to section 19. If the original denial is subject 
to a request for a hearing, then the subsequent application may be 
filed at any time more than one year after the Board of Directors, or 
its designee's, decision denying the application. The prohibition 
against participating in the affairs of a depository institution under 
section 19 shall continue until the individual has been granted consent 
in writing to participate in the affairs of a depository institution by 
the Board of Directors or its designee.

PART 308 RULES OF PRACTICE AND PROCEDURE

0
1. The authority citation for Part 308 continues to read as follows:

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

0
2. Revise Part 308, Subpart M as follows:
Subpart M--Procedures Applicable to the Request for and Conduct of, a 
Hearing After a Denial of an Application Under Section 19 of the FDIA
Sec.
308.156 Scope
308.157 Denial of applications.
308.158 Hearings.
308.159 [Reserved]
308.160 [Reserved]

Subpart M--Procedures Applicable to the Request for and Conduct of, 
a Hearing After a Denial of an Application Under Section 19 of the 
FDIA


Sec.  308.156  Scope.

    The rules and procedures set forth in this subpart shall apply to 
an application filed pursuant to section 19 of the FDIA (12 U.S.C. 
1829) and 12 CFR part 303, subpart L, by an insured depository 
institution and/or an individual, who has been convicted of any 
criminal offense involving dishonesty or a breach of trust or money 
laundering or who has agreed to enter into a pretrial diversion or 
similar program in connection with the prosecution of such offense, to 
seek the prior written consent of the FDIC to become or continue as an 
institution-affiliated party with respect to an insured depository 
institution; to own or control directly or indirectly an insured 
depository institution; or to participate directly or indirectly in any 
manner in the conduct of the affairs of an insured depository 
institution after such application has been denied under part 12 CFR 
part 303, subpart L.


Sec.  308.157   Denial of applications.

    If an application is denied pursuant to 12 CFR part 303, subpart L, 
then the applicant may request a hearing under this subpart M. The 
applicant will have 60 days after the date of the denial to file a 
written request with the Executive Secretary. In the request the 
applicant shall state the relief desired, the grounds supporting the 
request for relief and provide any supporting evidence that the 
applicant believes is responsive to the grounds for the denial.


Sec.  308.158   Hearings.

    (a) Hearing dates. The Executive Secretary shall order a hearing to 
be commenced within 60 days after receipt of a request for hearing on 
an application filed pursuant to Sec.  308.159. Upon the request of the 
applicant or FDIC enforcement counsel, the presiding officer or the 
Executive Secretary may order a later hearing date.
    (b) Burden of proof. The ultimate burden of proof shall be upon the 
person proposing to become or continue as an institution-affiliated 
party with respect to an insured depository institution; to own or 
control directly or indirectly an insured depository institution; or to 
participate directly or indirectly in any manner in the conduct of the 
affairs of an insured depository institution. The burden of going 
forward with a prima facie case shall be upon the FDIC.
    (c) Hearing procedure. (1) The hearing shall be held in Washington, 
DC, or at another designated place, before a presiding officer 
designated by the Executive Secretary.
    (2) The provisions of Sec. Sec.  308.6 through 308.12, 308.16, and 
308.21 of the Uniform Rules and Sec. Sec.  308.101 through 308.102 and 
308.104 through 308.106 of subpart B of the Local Rules shall apply to 
hearings held pursuant to this subpart.
    (3) The applicant may appear at the hearing and shall have the 
right to introduce relevant and material documents and oral argument. 
Members of the FDIC enforcement staff may attend the hearing and 
participate as a party.
    (4) There shall be no discovery in proceedings under this subpart.
    (5) 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 prior to the hearing. Witnesses shall be sworn, unless 
otherwise directed by the presiding officer. The presiding officer may 
ask questions of any witness. Each party shall have the opportunity to 
cross-examine any witness presented by an opposing party. The 
transcript of the proceedings shall be furnished, upon request and 
payment of the cost thereof, to the applicant afforded the hearing.
    (6) In the course of or in connection with any hearing under this 
paragraph, the presiding officer shall have 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. Where 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 shall be paid in accordance with Sec.  
308.14 of the Uniform Rules.
    (7) Upon the request of the applicant afforded the hearing, or FDIC 
enforcement staff, the record shall remain open for five business days 
following the hearing for the parties to make additional submissions to 
the record.
    (8) The presiding officer shall make recommendations to the Board 
of Directors, where possible, within 20 days after the last day for the 
parties to submit additions to the record.

[[Page 68363]]

    (9) The presiding officer shall forward his or her recommendation 
to the Executive Secretary who shall promptly certify the entire 
record, including the recommendation to the Board of Directors or its 
designee. The Executive Secretary's certification shall close the 
record.
    (d) Written submissions in lieu of hearing. The applicant or the 
bank may in writing waive a hearing and elect to have the matter 
determined on the basis of written submissions.
    (e) Failure to request or appear at hearing. Failure to request a 
hearing shall constitute a waiver of the opportunity for a hearing. 
Failure to appear at a hearing in person or through an authorized 
representative shall constitute a waiver of a hearing. If a hearing is 
waived, the person shall remain barred under section 19.
    (f) Decision by Board of Directors or its designee. Within 60 days 
following the Executive Secretary's certification of the record to the 
Board of Directors or its designee, the Board of Directors or its 
designee shall notify the affected person whether the person shall 
remain barred under section 19. The notification shall state the basis 
for any decision of the Board of Directors or its designee that is 
adverse to the applicant.


Sec.  308.159  [Reserved]


Sec.  308.160  [Reserved]

Federal Deposit Insurance Corporation.

    By order of the Board of Directors,

    Dated at Washington, DC, on November 19, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-26351 Filed 12-13-19; 8:45 am]
BILLING CODE 6714-01-P