4000 - Advisory Opinions
Applicability of Section 19 of the FDI Act When Pretrial Diversion Agreement Was Entered Into Before the Issuance of Formal Criminal Process
July 8, 1993
Richard M. Fraher, Attorney
This responds to your letter of , 1993, which you addressed to Regional Director Lyle V. Helgerson. In your letter, you sought an interpretation of Section 19(a)(1)(A) of the Federal Deposit Insurance Act (the "Act") as applied to certain facts.
The pertinent facts, as you set them forth in your letter, were as follows. An individual (the "Employee") was once employed by Bank A. During that employment, the Employee engaged in certain conduct which apparently violated 18 U.S.C. 656. In , 1993, the Employee became employed by Bank B. In 1993, the Employee entered into a pretrial diversion agreement with the United States Attorney as a result of the Employee's alleged violation of 18 U.S.C. 656 while he was employed at Bank A. According to your recitation of the facts, the Employee was not indicted, and information was not drawn, and no criminal proceedings were instituted against the Employee. Bank B now wishes to know whether the Employee is subject to section 19.
As you are aware, section 19(a) provides in pertinent part as follows:
(1) IN GENERAL--Except with the prior written consent of the Corporation--
(A) any person who has been convicted of any offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense, may not--
(i) become, or continue as, an institution-affiliated party with respect to any insured depository institution;
(ii) own or control, directly or indirectly, any insured depository institution; or
(iii) otherwise participate, directly or indirectly, in the conduct of the affairs of any insured depository institution; and
(B) any insured depository institution may not permit any person referred to in subparagraph (A) to engage in any conduct or continue any relationship prohibited under such subparagraph.
You have offered only one basis for arguing that section 19 does not apply to the Employee in the circumstances that you described in your letter. As you pointed out, section 19(a)(1)(A) by its terms applies to any person who has been convicted or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for certain specified kinds of offenses. You questioned whether the Employee's agreement to enter into a pretrial diversion program is an agreement made "in connection with a prosecution," because the agreement was consummated prior to the issuance of an indictment, information, or other formal criminal process. If the Employee's agreement to enter into a pretrial diversion program was not made "in connection with a prosecution," section 19(a)(1)(A) would not apply to the Employee.
Section 19(a)(1)(A) does not support a distinction, such as you have proposed, between pretrial diversion agreements that are entered into prior to the issuance of formal criminal process and agreements that are entered into after the issuance of formal criminal process. The lack of such a distinction is evident from the history of the statutory language and from the statutory language itself. Prior to the enactment of the Comprehensive Thrift and Bank Fraud and Taxpayer Recovery Act of 1990 (the "Crime Bill"), section 19(a)(1) applied only to persons who had been convicted of offenses involving dishonesty or breach of trust. The Crime Bill expanded the coverage of section 19 by extending the prohibition against participation in banking to individuals who have committed crimes involving dishonesty or breach of trust, but who have not been convicted because they have agreed to waive certain constitutional rights by entering into pretrial diversionary programs as an alternative to facing criminal convictions. The evident purpose of Section 19, as amended, is to exclude from participation in banking, without the FDIC's permission, all of those individuals who have committed certain kinds of crimes, the recurrence of which in any insured depository institution would pose a particular threat to the integrity of that institution. This purpose would not be served by excluding from the coverage of section 19 a class of individuals who have committed offenses involving dishonesty or breach of trust, and who would be distinguishable from other similarly situated individuals only by the purely serendipitous fact that some malefactors agree to enter into pretrial diversion agreements prior to the institution of formal criminal proceedings, while others await indictment before entering precisely the same kind of pretrial diversion agreements.
The text of section 19(a)(1)(A) does not compel an interpretation that is contrary to the evident purpose of the Crime Bill's amendment to the statute. Any pretrial diversion agreement that is entered into "in connection with a prosecution" for any of the specified kinds of offenses falls within the letter of Section 19. Under the terms of the professional ethics that govern the conduct of government attorneys, a prosecutor may not enter into a pretrial diversion agreement with a person unless the prosecutor has determined that there is evidence sufficient to support a criminal prosecution against that person. Thus, as a matter of common usage of language, every pretrial diversion agreement is entered into "in connection with a prosecution," whether that prosecution has formally commenced through the issuance of criminal process, or whether the prosecutor has simply indicated to the prospective defendant the fact that a criminal prosecution for a particular offense will ensue unless the prospective defendant agrees to enter a pretrial diversion program. Reading the text of section 19(a)(1)(A) to exclude from its coverage any pre-indictment agreement to enter into a pretrial diversion program would strain the statutory language to reach a result that is contrary to the evident purpose of the amendments that were made by the Crime Bill. Moreover, this office is aware of nothing in the legislative history of the Crime Bill that would support such an interpretation.
For the foregoing reasons, it is the opinion of this office that on the basis of the facts that were set forth in your letter, section 19(a)(1)(A) prohibits the Employee from participating in the affairs of any insured depository institution and also prohibits Bank B from permitting the Employee to participate in the affairs of Bank B, without permission from the FDIC.
Your letter seems to assume that if section 19(a) is applicable to the Employee, Bank B must terminate his employment and thereafter may seek the FDIC's written consent to reemploy the individual. As you may be aware, section 19 establishes a minimum ten year prohibition period for certain offenses. Section 19(a)(2) provides that if the offense which triggers the application to a person of section 19(a)(1)(A) is a violation of any one of certain specified sections of title 18 of the United States Code, including section 656, the FDIC may not consent to any exception to the prohibition set forth in Section 19(a)(1) for a period of ten years beginning from the date of the person's conviction or agreement to enter a pretrial diversion program. As applied to the Employee, section 19(a)(2) would prevent the FDIC from permitting the Employee to participate in the affairs of any insured depository institution until ____________________________________________ 2003, unless otherwise ordered by a competent court upon a motion by the FDIC as described in section 19(a)(2)(B).
The analysis, opinions, and conclusions contained in this letter are those of this office and are based on the specific facts and information contained in your letter of ____________________________________________ , 1993. These opinions and conclusions do not represent an official determination by the FDIC regarding the issues addressed herein and are not binding upon the FDIC.