The FDIC issued a Financial Institution Letter (FIL-3-2013) alerting banking institutions to recent modifications by the FDIC to the Statement of Policy for Section 19 of the Federal Deposit Insurance Act (the “FDI Act”). Section 19 of the FDI Act prohibits, without the prior written consent of the FDIC, a person convicted of certain criminal offenses, including any criminal offense or plea bargain involving dishonesty, a breach of trust, or money laundering, from participating in the affairs of an FDIC-insured depositary institution.
The FDIC, for insured institutions, and the FRB, for bank holding companies and savings and loan holding companies, have traditionally granted waivers for individuals with such convictions on the grounds that the underlying criminal offense met all of the four criteria listed below and were deemed de minimis. Prior to the recent modifications, the FDIC Statement of Policy for Section 19’s (the “Statement of Policy”) four (4) criteria for judging whether an offense was de minimis (all of which had to be met) were: (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 $1,000 or less, and the individual did not serve time in jail; (iii) the conviction or program was entered at least five (5) 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’s modifications to the Statement of Policy revise clause (ii) to now read: “the offense was punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less [rather than $1,000 or less], and the individual did not serve more than three (3) days of actual jail time [rather than requiring that no jail time has been served].” The FDIC said that it expects the modifications to the Statement of Policy to reduce the number of Section 19 applications and to reduce the regulatory burden on banking institutions.
Section 19 and the related Statement of Policy apply to all employees, board members, and consultants at an insured institution. Offenses covered by Section 19 have no statute of limitations; therefore, an insured institution must consider a job applicant’s entire legal history prior to such applicant’s start date. Whoever knowingly employs an individual contrary to Section 19 may be fined up to $1,000,000 for each day Section 19 is violated and may face up to five (5) years in jail. The FDIC noted that both Section 19 and the modifications to the Statement of Policy apply to all FDIC-insured depository institutions and pre-empt any applicable state laws.
The Statement of Policy, as modified, became effective on December 18, 2012.