Seyfarth Synopsis: The Federal Deposit Insurance Corporation is accepting comments until March 16, 2020 on the proposed codification to the Statement of Policy for Section 19 of the Federal Deposit Insurance Act, as well as whether and how the FDIC should expand the criteria for what constitutes de minimus offenses, foregoing the need for an application for written consent of the FDIC when evaluating criminal offenses.
Section 19 and the Existing FDIC Statement of Policy
Section 19 of the Federal Deposit Insurance Act (12 U.S.C. Section 1829) (“Section 19”) 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, absent the written consent of the FDIC.
In 1998, the FDIC issued a Statement of Policy (“SOP”) (which has been significantly modified in both 2012 and 2018), that provides guidance to the public regarding the application of Section 19. The SOP sets forth a set of criteria for providing relief from Section 19 for individuals with convictions for certain low-risk crimes that constituted de minimis crimes, forgoing the need for an application for a waiver of Section 19. 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: (i) There is only one conviction or program entry of record for a covered offense; (ii) 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; (iii) The conviction or program was entered at least five years prior to the date an application would otherwise be required; and; (iv) The offense did not involve an insured depository institution or insured credit union. The FDIC expanded the de minimis exception in 2018 to include insufficient funds checks of aggregate moderate value (less than $1,000); small dollar, simple theft (where the aggregate value of goods, services and/or currency taken is $500 or less); and isolated, minor offenses committed by young adults (21 years old or younger).
As FDIC Chairman Jelena McWilliams has noted, “application of Section 19 should not be a barrier to entry for individuals who have committed minor crimes in the past, paid their debt to society, reformed their conduct, and are now seeking to gain employment with a financial institution . . . [A]t the same time, the rulemaking will not undermine the intent of the statute – which is to ensure that individuals convicted of certain types of crimes related to dishonesty, breach of trust, or money laundering should not be employed in the banking industry.”
The proposal for codification of the SOP advances the ongoing efforts of the FDIC (as well as other federal regulators) to address the appropriate role of supervisory guidance compared to regulation, since supervisory guidance does not have the force and effect of law. By codifying the existing SOP, the FDIC hopes that its supervisory guidance will be more accessible, understandable, and responsive.
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