FDIC Proposes Revised Statement of Policy for Section 19
On January 8, 2018, the Federal Deposit Insurance Corporation (FDIC) proposed a revised Statement of Policy (SOP) for Section 19 of the Federal Deposit Insurance Act (FDI Act).1 Section 19 prohibits, without the prior written consent of the FDIC, 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 or similar program (program entry) in connection with the prosecution for such an offense. It also requires insured institutions to screen job applicants to avoid hiring or permitting participation in the affairs of the institution by persons who have covered criminal histories. Among other substantive and technical changes, the proposed SOP seeks to reduce regulatory burden by decreasing the number of covered offenses that will trigger an application, such as offenses involving multiple "bad" checks amounting to less than $1,000 and minor drug convictions committed during early adulthood.
A blackline comparison reflecting the proposed changes is available here.
Recognizing that the FDIC continues to approve a substantial portion of applications where the crime is relatively minor, the covered offenses have occurred when the individuals were young adults, and reasonable time has passed without additional covered offenses, the FDIC proposes to expand the FDIC's current de minimis criteria to capture a greater number of low-risk cases and, therefore, reduce the number of situations requiring an application.2 First, the FDIC proposes to revise existing de minimis bad checks provisions to not require applications for multiple convictions related to "bad" checks amounting to less than $1,000. Second, the proposed SOP revises the de minimis criteria to capture certain convictions or program entries based on minor, isolated offenses with a conviction or program entry occurring when the individual was a young adult (21 years old or younger), such as minor drug offenses. Third, the proposed SOP revises the de minimis criteria to capture certain convictions or program entries based on a simple theft of goods, services and/or currency where the aggregate value of the currency, goods and/or services taken was $500 or less at the time of conviction or program entry.
Other notable revisions in the proposed SOP include:
- Clarification that it is permissible for insured institutions to extend conditional offers of employment contingent on satisfactory background checks and Section 19 screening;
- Clarification of the application of Section 19 to directors and officers of affiliates, subsidiaries, or joint ventures of an insured institution or its holding company;
- Clarification that Section 19 applications will not be considered by the FDIC until all sentencing requirements associated with a conviction or conditions imposed by the pretrial diversion are satisfied and the case is considered final;
- Guidance relating to expungements and convictions that are set aside or reversed;
- Clarification of the FDIC's interpretation of "jail time" for purposes of the de minimis exception;
- Guidance, as required by statute, that no conviction or program entry for a violation of the Title 18 sections set out in 12 U.S.C. 1829(a)(2) can qualify under any of the de minimis exceptions; and
- Addition of a new factor for consideration when evaluating Section 19 applications.
Comments on the proposed SOP must be received on or before March 9, 2018.
© 2018 Arnold & Porter Kaye Scholer LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.