Modifications to the Statement of Policy for Section 19 of the Federal Deposit Insurance Act

Financial Institution Letter

FIL-3-2013

February 8, 2013

MODIFICATIONS TO THE STATEMENT OF POLICY FOR

SECTION 19 OF THE FEDERAL DEPOSIT INSURANCE ACT

Summary: Section 19 of the Federal Deposit Insurance (FDI) Act prohibits, without the prior written consent

of the Federal Deposit Insurance Corporation (FDIC), a person convicted of a criminal offense involving

dishonesty, breach of trust, money laundering, or who has entered into a pretrial diversion program, from

participating in the affairs of an FDIC-insured institution. On December 11, 2012, the FDIC Board of Directors

modified the de minimis exceptions regarding the potential fine and the number of days of imprisonment.

Modifications of the criteria are expected to reduce the number of Section 19 applications and regulatory

burden. The updated Statement of Policy (SOP) for Section 19 of the FDI Act is available on the FDIC’s Web

site and was published in the Federal Register on December 18, 2012. Further, the FDIC reminds the industry

to become familiar with the requirements of Section 19 of the FDI Act and the related SOP, and to ensure that

its personnel policies and procedures comply. All FDIC-insured institutions, bank holding companies, and

savings and loan holding companies must comply with the requirements of Section 19 of the FDI Act (12

U.S.C. 1829).

Statement of Applicability to Institutions Under $1 Billion in Total Assets: This guidance applies to all

FDIC-insured depository institutions.

Distribution:

FDIC-Insured Institutions

Highlights:



The SOP de minimis exceptions under which the FDIC will

grant an automatic approval under Section 19 have been

modified to reflect the following: “[t]he offense was punishable

by imprisonment for a term of one year or less and/or a fine of

$2,500 or less, and the individual did not serve more than

three (3) days of actual jail time.”



Industry applications for employment, background check

programs, and hiring practices must comply with Section 19

t an automatic approval under Section 19 have been

modified to reflect the following: “[t]he offense was punishable

by imprisonment for a term of one year or less and/or a fine of

$2,500 or less, and the individual did not serve more than

three (3) days of actual jail time.”



Industry applications for employment, background check

programs, and hiring practices must comply with Section 19.

Offenses covered by Section 19 have no statute of limitations.

Therefore, institutions must consider a job applicant’s entire

legal history.



In matters related to Section 19, federal law pre-empts

applicable state law(s).



Individuals with convictions subject to Section 19 may apply

to the FDIC for permission to participate in the affairs of an

FDIC- insured institution and to the Board of Governors of the

Federal Reserve System for permission to participate in the

affairs of a bank holding company or a savings and loan

holding company.



An individual cannot be affiliated with, or employed by, an

insured institution while a Section 19 application is pending

with the FDIC.

Suggested Routing:

Chief Executive Officer

Legal Counsel

Human Resources Department

Compliance Officer

Related Guidance:

Statement of Policy for Section 19 of the FDI Act:

http://www.fdic.gov/regulations/laws/rules/5000-

1300.html#fdic5000applicationsus

Attachment:

Modification to the Statement of Policy for Section

19 of the FDI Act

Application:

The Section 19 application form is available at

http://www.fdic.gov/regulations/laws/FORMS/section

19.html.

Contact:

For questions related to the SOP, please contact

Larisa Collado, Section Chief, at

ct:

http://www.fdic.gov/regulations/laws/rules/5000-

1300.html#fdic5000applicationsus

Attachment:

Modification to the Statement of Policy for Section

19 of the FDI Act

Application:

The Section 19 application form is available at

http://www.fdic.gov/regulations/laws/FORMS/section

19.html.

Contact:

For questions related to the SOP, please contact

Larisa Collado, Section Chief, at

(202) 898-8509 or lcollado@fdic.gov; or

Martin Thompson, Senior Review Examiner, at (202)

898-6767 or marthompson@fdic.gov.

Note:

FDIC Financial Institution Letters (FILs) may be

accessed from the FDIC's Web site at

www.fdic.gov/news/news/financial/2013/index.html.

To receive FILs electronically, please visit

http://www.fdic.gov/about/subscriptions/fil.html.

Paper copies may be obtained through the FDIC's

Public Information Center, 3501 Fairfax Drive, E-

1002, Arlington, Virginia 22226.

Federal Deposit Insurance Corporation

550 17th Street NW, Washington, D.C. 20429-9990

Modifications to the Statement of Policy for Section 19 of the Federal

Deposit Insurance Act

Section 19 of the Federal Deposit Insurance (FDI) Act (12 U.S.C. 1829) prohibits,

without the prior written consent of the Federal Deposit Insurance Corporation

(FDIC), a person convicted of certain criminal offenses (covered offenses), or

who has agreed to a pretrial diversion or similar program in connection with a

prosecution for such offense, from participating in the affairs of an FDIC-insured

institution (insured institution), a bank holding company, or a savings and loan

holding company. In matters related to Section 19, federal law pre-empts

applicable state law(s). The FDIC has jurisdiction over Section 19 matters for

insured institutions, while the Board of Governors of the Federal Reserve System

has jurisdiction over Section 19 matters for bank holding companies and savings

and loan holding companies

ution), a bank holding company, or a savings and loan

holding company. In matters related to Section 19, federal law pre-empts

applicable state law(s). The FDIC has jurisdiction over Section 19 matters for

insured institutions, while the Board of Governors of the Federal Reserve System

has jurisdiction over Section 19 matters for bank holding companies and savings

and loan holding companies.

Since it was enacted in 1950, Section 19 has been revised primarily to consider

money laundering and other statutory regulatory changes such as the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989 and the Dodd-Frank

Wall Street Reform and Consumer Protection Act. In implementing Section 19,

the FDIC is guided by the Statement of Policy for Section 19 of the FDI Act

(SOP), and de minimis factors discussed therein to determine the need for a

Section 19 application.

An individual subject to Section 19 cannot be affiliated with, or employed by, an

insured institution while a Section 19 application is pending. Two methods are

available for obtaining regulatory approval for Section 19 applications: an

institution can sponsor the application or an individual can seek a waiver of the

sponsorship requirements. The FDIC must consider an individual's lifetime legal

record and rehabilitation when processing a Section 19 application.

Historically, the FDIC has received a number of applications for Section 19

individual waivers for minor infractions that did not meet the de minimis factors

regarding the maximum potential fine or the jail time served. Experience has

shown that, under most state potential sentencing guidelines, fines for minor

infractions can be up to $2,500. Additionally, there have been numerous cases

where minimal actual jail time was included as part of the sentence; however,

such minimal jail time has not been a significant factor in the FDIC’s

consideration of the Section 19 application

fine or the jail time served. Experience has

shown that, under most state potential sentencing guidelines, fines for minor

infractions can be up to $2,500. Additionally, there have been numerous cases

where minimal actual jail time was included as part of the sentence; however,

such minimal jail time has not been a significant factor in the FDIC’s

consideration of the Section 19 application. Adjusting the de minimis exceptions

to increase the potential fine to $2,500 and allow a limited number days of actual

jail time served for minor infractions appears just and reasonable.

Therefore, the FDIC Board of Directors has modified the de minimis language of

the SOP regarding the potential fine and imprisonment to reflect the following:

“The offense was punishable by imprisonment for a term of one year or

less and/or a fine of $2,500 or less, and the individual did not serve more

than three (3) days of actual jail time.”

Insured institutions should become familiar with the SOP and refer to it when

reviewing the applicability of Section 19 to current and potential institution-

affiliated parties (IAP). An IAP includes, but is not limited to employees, board

members, and consultants. An individual with a covered offense or program

entry cannot participate in the affairs of an insured institution without prior

regulatory approval.

Industry applications for employment, background check programs, and hiring

practices must comply with Section 19. Offenses covered by Section 19 have no

statute of limitations. Therefore, institutions must consider a job applicant’s entire

legal history. Further, the industry should ensure that its employment due

diligence, including Section 19 compliance, is completed prior to an employee’s

start date.

Insured institutions that knowingly employ an individual with a covered offense or

program entry contrary to Section 19 can be subject to criminal penalties

ns. Therefore, institutions must consider a job applicant’s entire

legal history. Further, the industry should ensure that its employment due

diligence, including Section 19 compliance, is completed prior to an employee’s

start date.

Insured institutions that knowingly employ an individual with a covered offense or

program entry contrary to Section 19 can be subject to criminal penalties.

Whoever knowingly violates Section 19 can be fined not more than $1,000,000

for each day such prohibition is violated or imprisoned for not more than five (5)

years, or both.