4000 - Advisory Opinions
Whether a Bank Executive Convicted of Embezzlement and Subsequently Pardoned by the President of the U.S. is Subject to the Provisions of Section 19 of the FDI Act
March 28, 1991
Nicholas J, Ketcha Jr., Regional Director
Despite the fact that Mr. *** was pardoned, he remains subject to the provisions of section 19 of the Federal Deposit Insurance Act, codified at 12 U.S.C. 1829, as amended, which, among other things, prohibits any person convicted of a criminal offense involving dishonesty or a breach of trust from participating in any manner, directly or indirectly, in the conduct of the affairs of an insured depository institution without the prior approval of the FDIC.
The FDIC has long taken the position that a full and unconditional Presidential pardon does not eliminate the need to comply with section 19. This section is not penal in nature; its purpose is to give the FDIC the power to deny an individual the right to such participation because the nature of the criminal offense forming the basis for his prior conviction raises concerns about future dishonesty or breach of trust affecting an insured depository institution. Thus, while a pardon would affect the application of a penal law, it has no effect on laws such as Section 19, which are concerned with the fact of the conviction rather than the penalty resulting from the conviction.
We have recently reconfirmed this view, which was the FDIC's position back when Mr. ***'s pardon was granted, with the Department of Justice's Office of the Pardon Attorney. We were also informed that upon the granting of a pardon, the Office of the Pardon Attorney sends the recipient a letter which states, among other things:
A Presidential pardon is a sign of forgiveness. It does not erase or expunge the record of conviction and does not indicate innocence. On any application or other document which requires the information, a pardon recipient should disclose the fact of his or her conviction. However, the information that a pardon has been granted may be included and the warrant may be shown.
The provisions of section 19 are applicable to insured depository institutions as well as to the convicted person. Section 19(b) provides that any insured depository institution may not permit any such convicted person from engaging in any prohibited conduct or from continuing any relationship prohibited by section 19. Violation of section 19 may result in civil money penalties and, for knowing violations, criminal penalties punishable by either a fine of no more than $1,000,000 for each day the violation exists or imprisonment for not more than five years, or both.
In light of Mr. ***'s conviction, Mr. *** should immediately cease any participation, directly or indirectly, in the conduct of the affairs of the Bank. Absent immediate voluntary cessation of such participation by Mr. ***, the board of directors should immediately effectuate such prohibition. Failure to comply with this order may result in the imposition of the penalties described above both on the officers and directors of as well as Mr. ***.
Should the board of directors of the Bank wish to apply for the FDIC's approval of Mr. ***'s participation in the future, we have enclosed an application. If there are any questions about the application procedure, please contact Mr. Frank E. Francisco of this Office, at 212-704-1323.