FDIC Board Approves Statement of Policy on Section 19 of the Federal Deposit Insurance Act
The FDIC Board of Directors has approved the attached statement of policy (SOP) regarding applications filed pursuant to Section 19 of the Federal Deposit Insurance Act. The policy statement is effective December 1, 1998.
Section 19 prohibits, without the FDIC's prior written consent, 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 program in connection with such an offense. Section 19 was significantly expanded by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990. As a result, the two outstanding policy statements for Section 19 had become outdated. The new SOP is intended to replace them and supersede prior guidelines.
While the SOP maintains the FDIC's previous requirement that an application seeking the FDIC's consent must be filed by an insured depository institution, it provides blanket approval for certain de minimis crimes. The SOP provides that approval is automatically granted and application will not be required where the covered offense is considered de minimis because it meets the following criteria:
there is only one conviction or program entry of record for a covered offense;
the offense was punishable by imprisonment for a term of less than one year and/or a fine of less than $1,000, and the individual did not serve jail time;
the conviction or program was entered at least five years before the application; and
the offense did not involve an insured
depository institution or insured credit union.
Any person who meets these criteria will be covered by a fidelity bond to the same extent as others in similar positions, and will disclose the presence of the conviction or program entry to all insured depository institutions in the affairs of which he or she wishes to participate.
Other significant provisions of the SOP include a waiver of the institution filing requirement when an individual can demonstrate substantial good cause, and exclusion from Section 19's coverage a conviction that has been completely expunged, pretrial diversion and similar programs entered before November 29, 1990, and youthful offender adjudgments.
The SOP also clarifies the scope of Section 19's coverage. Section 19 applies to employees of an insured depository institution as well as to other persons who are in a position to influence or control the management or affairs of an insured depository institution. Absent the FDIC's written approval, persons covered by Section 19 are precluded from owning or controlling 25 percent or more of an institution's voting securities, or ten percent or more of the institution's voting securities if that person is the largest shareholder.
For further information, please contact James Orlowsky, Review Examiner in the Division of Supervision, on (202) 898-6763 or Andrea Winkler, Counsel in the Legal Division, on (202) 898-3727.
Distribution: FDIC-Supervised Banks (Commercial and Savings)
NOTE: Paper copies of FDIC financial
institution letters may be obtained through the FDIC's Public
Information Center, 801 17th Street, NW, Room 100, Washington, DC
20434 (800-276-6003 or (703) 562-2200).