FDIC Final Rule Revises and Codifies Policy to Allow Greater Employment Opportunities for Individuals with Certain Minor Criminal Offenses on Their Records

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Federal Register / Vol. 85, No. 162 / Thursday, August 20, 2020 / Rules and Regulations

1 12 U.S.C. 1829.

2 See 84 FR 68353.

3 See 84 FR 68353–54.

■4. Amend § 274a.12 by adding

paragraph (b)(26) to read as follows:

§ 274a.12

Classes of aliens authorized to

accept employment.

*

*

*

*

*

(b) * * *

(26)(i) Pursuant to 8 CFR 214.2(h)(21)

and notwithstanding 8 CFR

214.2(h)(2)(i)(D) and paragraph (b)(21)

of this section, an alien is authorized to

be employed, but no earlier than the

start date of employment indicated in

the H–2A petition, by a new employer

that has filed an H–2A petition naming

the alien as a beneficiary and requesting

an extension of stay for the alien, for a

period not to exceed 45 days beginning

from the ‘‘Received Date’’ on Form I–

797 (Notice of Action) acknowledging

receipt of the petition requesting an

extension of stay, or 45 days beginning

on the start date of employment if the

start date of employment indicated in

the H–2A petition occurs after the filing.

The length of the period (up to 45 days)

is to be determined by USCIS in its

discretion. However, if USCIS

adjudicates the petition prior to the

expiration of this 45-day period and

denies the petition for extension of stay,

or if the petitioner withdraws the

petition before the expiration of the 45-

day period, the employment

authorization under this paragraph

(b)(26) will automatically terminate

upon 15 days after the date of the denial

decision or the date on which the

petition is withdrawn.

udicates the petition prior to the

expiration of this 45-day period and

denies the petition for extension of stay,

or if the petitioner withdraws the

petition before the expiration of the 45-

day period, the employment

authorization under this paragraph

(b)(26) will automatically terminate

upon 15 days after the date of the denial

decision or the date on which the

petition is withdrawn.

(ii) Authorization to initiate

employment changes pursuant to 8 CFR

214.2(h)(21) and paragraph (b)(26)(i) of

this section begins at 12 a.m. on August

19, 2020, and ends at the end of

December 17, 2020.

*

*

*

*

*

Chad R. Mizelle,

Senior Official Performing the Duties of the

General Counsel, U.S. Department of

Homeland Security.

[FR Doc. 2020–18283 Filed 8–18–20; 8:45 am]

BILLING CODE 9111–97–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Parts 303 and 308

RIN 3064–AF19

Incorporation of Existing Statement of

Policy Regarding Requests for

Participation in the Affairs of an

Insured Depository Institution by

Convicted Individuals

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Final rule.

SUMMARY: Section 19 of the Federal

Deposit Insurance Act requires persons

convicted of certain criminal offenses to

obtain prior written consent before

participating in the conduct of the

affairs of any depository institution. The

Federal Deposit Insurance Corporation

(FDIC) is revising its existing regulations

relating to section 19 to revise the

FDIC’s procedures and standards

relating to applications for the FDIC’s

written consent, and to incorporate and

revise the FDIC’s existing Statement of

Policy for Section 19 of the Federal

Deposit Insurance Act (SOP)

duct of the

affairs of any depository institution. The

Federal Deposit Insurance Corporation

(FDIC) is revising its existing regulations

relating to section 19 to revise the

FDIC’s procedures and standards

relating to applications for the FDIC’s

written consent, and to incorporate and

revise the FDIC’s existing Statement of

Policy for Section 19 of the Federal

Deposit Insurance Act (SOP).

Incorporating the SOP into the FDIC’s

regulations will make application of the

SOP more transparent, increase

certainty concerning the FDIC’s

application process, afford regulatory

relief, and help both insured depository

institutions and affected individuals to

understand the impact of section 19 and

to potentially seek relief from it. The

FDIC’s existing SOP will be rescinded

on the date this final rule (rule) becomes

effective.

DATES: This rule is effective September

21, 2020.

FOR FURTHER INFORMATION CONTACT:

Timothy Schuett, Review Examiner

(763) 614–9473; Brian Zeller, Review

Examiner (571) 345–8170; or Larisa

Collado, Section Chief (202) 898–8509,

lcollado@fdic.gov, in the Division of

Risk Management Supervision; or

Graham Rehrig, Senior Attorney, (202)

898–3829; John Dorsey, Acting

Supervisory Counsel, (202) 898–3807;

Anne DeSimone, Deputy Regional

Counsel, (781) 794–5541; or Andrea

Winkler, Acting Assistant General

Counsel, (202) 898–3727, in the Legal

Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objectives

The policy objective of the rule is to

clarify how the FDIC interprets and

applies section 19 of the Federal Deposit

Insurance Act (section 19),1 clarify the

application process for insured

depository institutions and individuals

who seek relief from section 19, and

expand the scope of relief available for

certain offenses. The FDIC SOP provides

the public with guidance relating to

section 19 and the FDIC’s application of

this statute. The current SOP, with

modifications over time, has been

published and a resource for the public

for over twenty years

on process for insured

depository institutions and individuals

who seek relief from section 19, and

expand the scope of relief available for

certain offenses. The FDIC SOP provides

the public with guidance relating to

section 19 and the FDIC’s application of

this statute. The current SOP, with

modifications over time, has been

published and a resource for the public

for over twenty years. However, the

terms and procedures outlined in the

SOP have not been adopted as formal

regulations by the FDIC. To remove

potential ambiguities about the FDIC’s

approach to section 19 or the

application process, the rule

incorporates much of the current SOP,

while adopting certain changes

suggested by commenters.

II. Background and Public Comments

Section 19 prohibits, without the

prior written consent of the FDIC, the

participation in banking by any person

who has been convicted of a crime of

dishonesty or breach of trust or money

laundering, or who has agreed to enter

into a pretrial diversion or similar

program in connection with the

prosecution for such an offense. Further,

this law forbids an insured depository

institution (IDI) from permitting such a

person to engage in any conduct or to

continue any relationship prohibited by

section 19. Section 19 also imposes a

ten-year ban for a person convicted of

certain crimes enumerated in Title 18 of

the United States Code, which can be

removed only upon a motion by the

FDIC and approval by the sentencing

court

this law forbids an insured depository

institution (IDI) from permitting such a

person to engage in any conduct or to

continue any relationship prohibited by

section 19. Section 19 also imposes a

ten-year ban for a person convicted of

certain crimes enumerated in Title 18 of

the United States Code, which can be

removed only upon a motion by the

FDIC and approval by the sentencing

court.

On December 16, 2019, the FDIC

published a notice of proposed

rulemaking (proposal) to incorporate the

SOP into the FDIC’s existing Procedure

and Rules of Practice.2 In the proposal,

the FDIC provided a history of the SOP

from its issuance in December 1998,

through clarifications in 2007 and 2011,

modification in 2012, and through its

most-recent revision in August 2018.3

The FDIC proposed to incorporate the

current provisions of the SOP into its

rules and procedures in order to provide

greater transparency into the FDIC’s

interpretation and application of section

19, to provide greater certainty

concerning the FDIC’s application

process, and to aid both IDIs and

individuals who may be affected by

section 19 to understand its impact and

potentially seek relief from its

provisions. The FDIC proposed to

rescind such sections of 12 CFR 308,

subpart M, that would be duplicative of

the changes proposed for part 303,

subpart L, and to revise the remaining

sections to ensure conformity for any

request for a hearing when an

application under section 19 has been

denied.

The FDIC, in the proposal, requested

comments on all aspects of its approach

to section 19. The FDIC also requested

comments, in particular, on the

following topics:

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request for a hearing when an

application under section 19 has been

denied.

The FDIC, in the proposal, requested

comments on all aspects of its approach

to section 19. The FDIC also requested

comments, in particular, on the

following topics:

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Federal Register / Vol. 85, No. 162 / Thursday, August 20, 2020 / Rules and Regulations

4 The FDIC notes that, during the de minimis

waiting period, individuals retain the option of

filing an application for consideration by the FDIC.

• The de minimis criteria for offenses

that represent low risk to the Deposit

Insurance Fund;

• expansion of the de minimis

category for use of fake identification;

• modification of the five-year post-

conviction cooling-off period for certain

offenses; and

• the application of section 19 to

expungements.

The comment period closed on March

16, 2020. The FDIC received multiple

comments from nine different

commenters, consisting of three policy

institutes, a reentry employment

provider, a depository institution trade

group, two financial institutions, an

advocacy group on behalf of 28

additional organizations, and an

individual. All of the comments

generally supported the proposal. The

comment received from the individual

did not offer specific changes to the

proposal, but the other eight

commenters suggested a variety of

changes. The comments and the FDIC’s

responses are discussed below in

Sections III and IV.

III. Description and Expected Effects of

the Rule

The rule addresses, among other

topics, who is covered by section 19, the

types of offenses covered by section 19,

the effect of the completion of

sentencing or pretrial-diversion program

requirements in the context of section

19, and the FDIC’s procedures for

reviewing applications filed under

section 19

d below in

Sections III and IV.

III. Description and Expected Effects of

the Rule

The rule addresses, among other

topics, who is covered by section 19, the

types of offenses covered by section 19,

the effect of the completion of

sentencing or pretrial-diversion program

requirements in the context of section

19, and the FDIC’s procedures for

reviewing applications filed under

section 19. The rule makes several

significant changes to the SOP, partly in

response to the public comments. These

revisions include the following:

• Expungements. The rule excludes

all covered offenses that have been

expunged or sealed by a court of

competent jurisdiction or by operation

of law.

• De minimis offenses (offenses for

which a person will be deemed

automatically approved and no

application will be required). Increases

the small-dollar theft threshold to

$1,000. Expands the de minimis

exception to include the use of a fake or

false identification by a person under

the age of 21 to circumvent age based

restrictions on purchases, activities, or

entry (not just alcohol-related purposes).

Allows for two covered de minimis

offenses on a person’s criminal record to

still qualify for the de minimis

exception. (Note, no offense committed

against an IDI or insured credit union

can qualify as ‘‘de minimis.’’) If an

individual has two covered offenses on

their record, the rule decreases the

amount of time that must elapse,

following the date of conviction or entry

into a pre-trial diversion program,

before the covered offenses may be

deemed de minimis.4 The rule also

eliminates this waiting period when

there is only one covered, de minimis

offense on a person’s record.

• Application procedures. Clarifies

when and how an application must be

filed, the application types available,

and how the FDIC will evaluate an

application. In addition, the rule

addresses denials of applications.

Specifically, the rule does the

following:

A. Revised Provisions of 12 CFR Part

303, Subpart L

1

d when

there is only one covered, de minimis

offense on a person’s record.

• Application procedures. Clarifies

when and how an application must be

filed, the application types available,

and how the FDIC will evaluate an

application. In addition, the rule

addresses denials of applications.

Specifically, the rule does the

following:

A. Revised Provisions of 12 CFR Part

303, Subpart L

1. Section 303.220

What is section 19

of the FDI Act?

This section combines portions of the

‘‘scope’’ section in the existing 12 CFR

303.220 and the introduction part of the

SOP. Paragraph (a) reflects the scope

provisions. Paragraph (b) sets out the

application of section 19 to insured

depository institutions, including the

conditional offers of employment that

FDIC-supervised institutions may make.

The substance of this paragraph comes

from the SOP. Paragraph (c) also comes

from the SOP and addresses the need for

an application.

2. Section 303.221

Who is covered by

section 19?

This section describes who is covered

by section 19 and comes mainly from

the existing SOP. Paragraph (a) defines

‘‘institution-affiliated parties’’ and

others who may fall within section 19.

Paragraph (b) defines the term ‘‘person’’

under section 19 as an individual, not

a legal entity. Paragraph (c) concerns

individuals who file an application with

the FDIC under section 19 and who also

seek to participate in the affairs of a

bank or savings and loan holding

company, noting that such individuals

may have to comply with any filing

requirements of the Board of the

Governors of the Federal Reserve

System under 12 U.S.C. 1829(d) and (e).

Paragraph (d) defines when

‘‘ownership’’ or ‘‘control’’ results in the

application of section 19 to an

individual or individuals who may be

deemed in control of, or be deemed to

be an owner of, an IDI.

3. Section 303.222

What offenses are

covered under section 19?

This section addresses covered

criminal offenses under section 19. It

comes mainly from the SOP

r 12 U.S.C. 1829(d) and (e).

Paragraph (d) defines when

‘‘ownership’’ or ‘‘control’’ results in the

application of section 19 to an

individual or individuals who may be

deemed in control of, or be deemed to

be an owner of, an IDI.

3. Section 303.222

What offenses are

covered under section 19?

This section addresses covered

criminal offenses under section 19. It

comes mainly from the SOP. Paragraph

(a) notes that section 19 applies to any

person who has been convicted of any

criminal offense involving dishonesty,

breach of trust, or money laundering, or

who has agreed to enter into a pretrial

diversion or similar program in

connection with a prosecution for any

such offense. This paragraph also

describes the restrictions that section 19

places upon such individuals.

Paragraph (b) requires that, to determine

whether the criminal offense is one of

dishonesty, breach of trust, or money

laundering, the FDIC will look to the

statutory elements of the criminal

offense or to court decisions in the

relevant jurisdiction.

Paragraph (c) requires an application

for all drug offenses, except for simple

possession, unless the criminal offense

meets the criteria in § 303.227 for not

filing an application. The FDIC has

declined to adopt a commenter’s

proposal that the FDIC eliminate all

drug-related convictions from being

considered covered offenses under

section 19, or significantly narrow the

scope of covered drug offenses. The

FDIC maintains that an application is

required for it to determine the nature

of the offense and elements of the crime

and therefore it will continue the

current requirement that an application

be filed, unless the offense is de

minimis.

4. Section 303.223

What constitutes a

conviction under section 19?

This section comes mainly from the

SOP, but clarifies the status of

convictions reversed on appeal and

expands and simplifies the exclusion for

expungements

ture

of the offense and elements of the crime

and therefore it will continue the

current requirement that an application

be filed, unless the offense is de

minimis.

4. Section 303.223

What constitutes a

conviction under section 19?

This section comes mainly from the

SOP, but clarifies the status of

convictions reversed on appeal and

expands and simplifies the exclusion for

expungements. The current SOP notes

that a conviction or program entry that

has been completely expunged is not

subject to section 19 and does not

require an application. For the

expungement to be considered

‘‘complete’’ under the current SOP, the

jurisdiction granting the expungement

must not allow the conviction or

program entry to be used for any

subsequent purpose, including but not

limited to an evaluation of a person’s

fitness or character. This constraint has

been a source of confusion for the

industry and individual applicants, and

the FDIC has twice undertaken to clarify

this term in prior SOP revisions. The

public comments to the NPR make it

clear that the confusion remains.

Paragraph (a) states that there must

have been a conviction of record for

section 19 to apply, and that section 19

does not apply to arrests, pending cases

not brought to trial (unless the person

has a program entry as set out in

§ 303.224), or any conviction reversed

on appeal unless the reversal was for the

purpose of re-sentencing. This revised

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tion 19

does not apply to arrests, pending cases

not brought to trial (unless the person

has a program entry as set out in

§ 303.224), or any conviction reversed

on appeal unless the reversal was for the

purpose of re-sentencing. This revised

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51314

Federal Register / Vol. 85, No. 162 / Thursday, August 20, 2020 / Rules and Regulations

language is in response to one

commenter’s request that the FDIC

clarify its position on appellate

decisions as they pertain to the scope of

section 19. The FDIC notes, however,

that covered offenses that have been

pardoned—and which are not otherwise

excluded by the SOP—will still require

an application.

Paragraph (b) clarifies that, absent a

program entry, when an individual is

charged with a covered offense but is

subsequently convicted of an offense

that is not a covered offense, that

conviction is not subject to section 19.

Paragraph (c) excludes covered

offenses that have been expunged or

sealed by a court of competent

jurisdiction or by operation of law. Six

commenters asked that the FDIC

significantly revise its policy on the

expungement of criminal records,

including proposals to eliminate the

requirement of complete expungement.

To support this view, commenters

highlighted the variance in

expungement practices between

jurisdictions and the significant

ambiguity for applicants and banks that

are tasked with interpreting unfamiliar

state law. In fact, only a few states and

jurisdictions have expungement

processes that result in a ‘‘complete

expungement’’ under the standards set

forth in the current SOP. After

considering these comments, the FDIC

has agreed to expand the scope of the

SOP’s expungement language

ictions and the significant

ambiguity for applicants and banks that

are tasked with interpreting unfamiliar

state law. In fact, only a few states and

jurisdictions have expungement

processes that result in a ‘‘complete

expungement’’ under the standards set

forth in the current SOP. After

considering these comments, the FDIC

has agreed to expand the scope of the

SOP’s expungement language. The FDIC

believes that these revisions will reduce

regulatory burden upon banks and

potential applicants by decreasing the

number of required applications and

reducing the time spent interpreting the

expungement laws of various

jurisdictions.

Paragraph (d) excludes ‘‘youthful

offender’’ judgments for minors from the

scope of section 19.

5. Section 303.224

What constitutes a

pretrial diversion or similar program

under section 19?

This section comes mainly from the

SOP. Paragraph (a) defines what

constitutes a pretrial diversion or

similar program (a program entry), and

excludes program entries that occurred

prior to November 29, 1990.

Paragraph (b) clarifies that when a

covered offense either is reduced by a

program entry to an offense that would

otherwise not be covered by section 19

or is dismissed upon successful

completion of a program entry, the

offense remains a covered offense for

purposes of section 19. The covered

offense will require an application

unless it is de minimis as provided by

§ 303.227.

Paragraph (c) states that

expungements or sealings of program

entry records will be treated the same as

expungements or sealings of

convictions.

6. Section 303.225

What are the types

of applications that can be filed?

This section is a combination of the

existing §§ 303.221 and 308.158 and the

SOP. Paragraph (a) establishes the

institution-filing requirement (bank-

sponsored applications). Paragraph (b)

establishes the procedure to apply when

an IDI will not file an application for an

individual (individual waiver

applications).

7

Section 303.225

What are the types

of applications that can be filed?

This section is a combination of the

existing §§ 303.221 and 308.158 and the

SOP. Paragraph (a) establishes the

institution-filing requirement (bank-

sponsored applications). Paragraph (b)

establishes the procedure to apply when

an IDI will not file an application for an

individual (individual waiver

applications).

7. Section 303.226

When is an

application to be filed?

This section states when an

application is to be filed, excepting from

its requirement those covered offenses

which are considered de minimis under

subpart L. An application will not be

considered by the FDIC until all

sentencing requirements associated with

a conviction have been met or all

requirements of the program entry have

been completed.

8. Section 303.227

When is an

application not required for a covered

conviction or program entry (de minimis

offenses)?

This section comes mainly from the

SOP but has been expanded. Under the

current SOP, certain minor offenses are

deemed to present low risk to insured

institutions. Currently, an individual’s

covered offense may be considered de

minimis only when there is one

conviction or program entry, and the

conviction or program entry occurred at

least five years before the date on which

an application would be required. For

applicants whose underlying

misconduct occurred when they were

21 years of age or younger, the waiting

period is reduced to 30 months. Certain

individuals may also be required to

complete all sentencing or program

requirements before qualifying for the

de minimis exception.

Eight commenters supported the

expansion of the de minimis exception

to filing as it currently exists, and seven

of the commenters provided specific

proposals for the expansion,

clarification, or modification, of this

exception. Three commenters proposed

that the FDIC reduce the waiting period

to qualify under the de minimis

framework

ents before qualifying for the

de minimis exception.

Eight commenters supported the

expansion of the de minimis exception

to filing as it currently exists, and seven

of the commenters provided specific

proposals for the expansion,

clarification, or modification, of this

exception. Three commenters proposed

that the FDIC reduce the waiting period

to qualify under the de minimis

framework. Three commenters also

proposed that the FDIC increase the

simple-theft threshold to $1,000 to align

with the ‘‘bad-check’’ or insufficient-

funds threshold under the de minimis

framework. Moreover, three commenters

proposed that the FDIC include

additional minor crimes under the de

minimis exception, regardless of the

maximum punishment for those crimes.

Paragraph (a) establishes the general

criteria for convictions or program

entries to be considered de minimis, if

the criteria are met. If the de minimis

conditions are satisfied, the person is

deemed automatically approved and no

application will be required. The

general criteria have been expanded, in

response to comments, in two

significant ways: (1) An individual with

two convictions or program entries for

covered offenses may be eligible for the

de minimis exception, provided the

other criteria are satisfied with respect

to both convictions or program entries;

and (2) the five-year waiting period has

been eliminated when the individual

has only one de minimis offense, and

the waiting period has been reduced to

three years when the individual has two

de minimis offenses (or 18 months if the

actions that resulted in both convictions

or program entries all occurred when

the individual was 21 years of age or

younger).

The FDIC continues to process a

number of applications from individuals

who are low risk, and these applications

are generally approved

e, and

the waiting period has been reduced to

three years when the individual has two

de minimis offenses (or 18 months if the

actions that resulted in both convictions

or program entries all occurred when

the individual was 21 years of age or

younger).

The FDIC continues to process a

number of applications from individuals

who are low risk, and these applications

are generally approved. FDIC review of

these applications revealed that many

include multiple convictions or program

entries for minor offenses, or

convictions or program entries that

occurred less than 5 years (or 30

months) ago. Because these applications

are considered low risk and are

generally approved, the FDIC is

expanding the de minimis criteria to

include individuals with up to two

convictions or program entries, each of

which offenses would, by themselves,

qualify under the de minimis exception.

Paragraph (b) establishes certain other

specific exceptions to the filing

requirement, which exceptions, if met,

will result in a potential application

being deemed automatically approved.

Partly in response to the comments, the

FDIC has made substantive changes to

paragraphs (b)(1), (3), and (4). Paragraph

(b)(1) shortens the 30-month waiting

period under the general criteria to 18

months when all the elements of the

offense(s) occurred when the person

was age 21 or younger. Paragraph (b)(2)

establishes the criteria for when certain

convictions or program entries for bad

or insufficient-funds checks will not

require an application. Paragraph (b)(3)

establishes the criteria for when certain

small-dollar simple theft convictions or

program entries of $1,000 or less will

not require an application. The small-

dollar, simple theft de minimis criteria

was added to the SOP by the FDIC

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(b)(3)

establishes the criteria for when certain

small-dollar simple theft convictions or

program entries of $1,000 or less will

not require an application. The small-

dollar, simple theft de minimis criteria

was added to the SOP by the FDIC

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51315

Federal Register / Vol. 85, No. 162 / Thursday, August 20, 2020 / Rules and Regulations

5 FDIC Call Report Data, December 31, 2019.

Board in July 2018. The FDIC continues

to process section 19 applications for

convictions or program entries

involving small-dollar, simple theft.

These covered offenses are relatively

low-risk and generally result in

approval of an application following a

reasonable period of rehabilitation. The

rule increases the dollar limit to

$1,000—from the current $500—based

on some commenters’ suggestions to

better align this threshold with the limit

for ‘‘bad’’ or insufficient funds check(s),

and to reduce the number of low-risk

applications that have historically been

approved. Excluded from this exception

to filing are convictions or program

entries for burglary, forgery, identity

theft, and fraud. Paragraph (b)(4)

establishes the criteria for when the

creation or possession of a fake or false

identification by a person under the age

of 21, or the use of a fake or false

identification by a person to circumvent

age-based restrictions on purchases,

activities, or entry will not require an

application. This exception was

expanded beyond the use of a fake or

false identification to purchase alcohol

or to enter a premises where alcohol is

served. The FDIC believes that this

provision can be expanded to provide

additional regulatory relief without

significantly increasing risk to the

financial system

ge-based restrictions on purchases,

activities, or entry will not require an

application. This exception was

expanded beyond the use of a fake or

false identification to purchase alcohol

or to enter a premises where alcohol is

served. The FDIC believes that this

provision can be expanded to provide

additional regulatory relief without

significantly increasing risk to the

financial system.

Paragraph (c) requires that, for any

case where the person is able to avail

themselves of the de minimis exception

to filing, she or he must disclose the

conviction(s) or program entry(ies) to an

IDI and must qualify for a fidelity bond

to the same extent as others in a similar

position.

Paragraph (d) states that any

conviction or program entry for criminal

offenses under Title 18 of the U.S. Code,

as set out in 12 U.S.C. 1829(a)(2), cannot

qualify under the de minimis exception

to filing an application.

9. Section 303.228

How To File an

Application

This section comes from the SOP and

requires that an IDI is required to file an

application on behalf of an individual

under section 19 to participate in its

affairs unless the FDIC grants the

individual a waiver for good cause

shown to file on her or his own behalf.

IDIs should file with the FDIC’s regional

office where the institution’s home

office is located, and any individual

waiver and application should be filed

with the FDIC’s regional office where

the person lives.

10. Section 303.229

How an

Application is Evaluated

This section comes from a

combination of § 308.157 and the SOP.

Paragraph (a) sets out the ultimate

determination the FDIC will make as to

the level of risk the applicant poses to

an IDI and whether it will consent to

allow the person to participate in an

IDI’s affairs. In evaluating the risk posed

by the person’s participation, the FDIC

has established nine factors that it will

consider, including other factors that

might be relevant to a particular

application

) sets out the ultimate

determination the FDIC will make as to

the level of risk the applicant poses to

an IDI and whether it will consent to

allow the person to participate in an

IDI’s affairs. In evaluating the risk posed

by the person’s participation, the FDIC

has established nine factors that it will

consider, including other factors that

might be relevant to a particular

application. Paragraph (b) states that the

question of whether a person was guilty

of the offense for which the person was

convicted, or had a program entry for,

is not an issue for part 303, subpart L

or for part 308, subpart M. Paragraph (c)

states that the FDIC will apply the

factors and determination used in

paragraph (a) when evaluating an

application that is made to terminate the

ten-year ban under 12 U.S.C. 1829(a)(2).

Paragraph (d) provides that a person

must be bonded the same as others in

that position, and the person must

disclose the covered conviction or

program entry to any IDI in which she

or he intends to participate.

Paragraphs (e) and (f) pertain to bank-

sponsored applications. Paragraph (e)

provides that FDIC approval to work

pertains to a specific job at a specific

IDI. The IDI may be required to seek

permission from the FDIC before there

may be a significant change in a

person’s duties or responsibilities, and

the FDIC regional director may request

a new application. Paragraph (f) states

that approval to work at a specific IDI

is limited to that institution—or to a

successor institution (for instance, as a

result of the IDI’s merger with or

acquisition by another IDI)—and a new

application is required to work at

another IDI.

11. Section 303.230

What will the

FDIC do if the application is denied?

This section is a combination of

current §§ 303.223, 308.157, and

308.159. Paragraph (a) provides that the

FDIC will provide a written denial of an

application, which will summarize or

cite the relevant factors from § 303.229

th or

acquisition by another IDI)—and a new

application is required to work at

another IDI.

11. Section 303.230

What will the

FDIC do if the application is denied?

This section is a combination of

current §§ 303.223, 308.157, and

308.159. Paragraph (a) provides that the

FDIC will provide a written denial of an

application, which will summarize or

cite the relevant factors from § 303.229.

Paragraph (b) provides that the

applicant can file a written request for

a hearing under part 308, subpart M

within 60 days of the denial.

12. Section 303.231

Waiting Time for

a Subsequent Application if an

Application is Denied

This section comes mainly from

§ 308.158 and was clarified so that an

applicant will need to wait one year

from the date of the denial or decision

of the FDIC Board or its designee.

B. Revised Provisions of 12 CFR Part

308, Subpart M

1. Section 308.156

Scope

This section has been revised to

reflect its application to denials that are

issued under 12 CFR part 303, subpart

L.

2. Section 308.157

Relevant

Considerations

This section will be rescinded.

3. Section 308.158

Filing Papers and

Effective Date

This section will be rescinded.

4. Section 308.159

Denial of

Application

This section has been revised to

reflect the outcome of the application

process in part 303, subpart L and to

clarify the procedure by which a hearing

may be requested. It will be renumbered

as § 308.157.

5. Section 308.160

Hearings

This section will remain as it

currently exists, but will be renumbered

as § 308.158.

After renumbering, §§ 308.159 and

309.160 will be reserved.

C. Expected Effects

The changes adopted will provide

immediate relief to IDIs, as well as to

individuals who represent a low risk to

the Deposit Insurance Fund and who

would otherwise be required under

section 19 to file waiver applications, if

they wish to be employed by an IDI.

Moreover, these applications would

very likely be approved under existing

practices

09.160 will be reserved.

C. Expected Effects

The changes adopted will provide

immediate relief to IDIs, as well as to

individuals who represent a low risk to

the Deposit Insurance Fund and who

would otherwise be required under

section 19 to file waiver applications, if

they wish to be employed by an IDI.

Moreover, these applications would

very likely be approved under existing

practices. Based on the FDIC’s analysis

of applications submitted between

January 1, 2017, through April 30, 2020,

the changes would not have altered the

outcome of any applications that were

controversial or ultimately denied.

Overall, the FDIC expects the rule to

have relatively small effects, in the

aggregate, on the public and insured

institutions. The FDIC currently insures

5,186 depository institutions, which

could be affected by the rule.5

Additionally, as discussed previously,

the rule will apply to certain persons

covered by the provisions of section 19

who are or wish to become employees,

officers, directors or shareholders of an

IDI. In the period from 2014 through

2019, the FDIC received 69 bank-

sponsored section 19 applications, an

average of about 12 per year.

Additionally, the FDIC received 654

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6 Application Tracking System.

individual section 19 applications

during the same period, an average of

109 per year.6 Therefore, the FDIC

estimates that the rule would affect at

least 12 FDIC-insured depository

institutions, and 109 individuals per

year. The FDIC acknowledges that these

estimates do not fully capture the full

effect of the rule; most notably, the

estimates do not take into account any

individuals or institutions who choose

not to apply rather than go through the

application process

ar.6 Therefore, the FDIC

estimates that the rule would affect at

least 12 FDIC-insured depository

institutions, and 109 individuals per

year. The FDIC acknowledges that these

estimates do not fully capture the full

effect of the rule; most notably, the

estimates do not take into account any

individuals or institutions who choose

not to apply rather than go through the

application process.

One commenter made this point,

suggesting that the FDIC is likely

underestimating the number of ex-

offenders affected by the rule.

Specifically, this commenter suggested

that the number of section 19

applications received does not take into

account the number of individuals or

institutions who choose not to apply

because of the complexity of the

application process. The FDIC agrees

that this is one reason the estimates

chosen do not fully reflect the impact of

the rule.

As described previously, the rule

incorporates and revises the current

content of the SOP into the FDIC’s

regulations. The FDIC believes the

codification is unlikely to have

substantive effects on most covered

entities and individuals. The FDIC

already considers individuals who have

been convicted of a crime of dishonesty,

breach of trust, or money laundering,

who participate in the affairs of an IDI

without the prior written consent of the

FDIC, to be subject to section 19, and

will continue to do after the SOP

becomes codified.

To the extent that the revised

consideration of expungements,

reduction in waiting periods, increase in

the threshold for certain small-dollar

simple-theft convictions, or other items

provide relief to certain institutions or

individuals, the FDIC believes that such

effects are likely to be relatively small.

As discussed previously, some of these

changes are being adopted to establish

better alignment with other regulatory

limits or more-consistent treatment of

individuals

ods, increase in

the threshold for certain small-dollar

simple-theft convictions, or other items

provide relief to certain institutions or

individuals, the FDIC believes that such

effects are likely to be relatively small.

As discussed previously, some of these

changes are being adopted to establish

better alignment with other regulatory

limits or more-consistent treatment of

individuals. Other revisions are

intended to reduce regulatory burden on

individuals and IDIs by decreasing the

number of applications that would

otherwise be required under section 19.

The FDIC believes that such changes

more accurately reflect the risk of

dishonesty and breach of trust posed by

the potential employment of certain

individuals to institutions. As noted

earlier, the FDIC has received on

average about 109 section 19

applications per year since 2014,

relative to a population of insured

institutions of over 5,000, suggesting

that the effects of the rule are likely to

be relatively small.

In short, the rule will benefit covered

entities and individuals by further

clarifying the FDIC’s interpretation of

section 19 and the application process,

expanding regulatory relief, and

reducing the number of applications

required under section 19.

IV. Alternatives Considered

The FDIC considered the other

proposals that were submitted by the

commenters but believes that the final

amendments represent the most

appropriate option for covered entities

and individuals.

A. Application Process

Two commenters requested that the

FDIC reduce the section 19 application

burden. One commenter provided this

recommendation without specifying the

proposed changes

nsidered

The FDIC considered the other

proposals that were submitted by the

commenters but believes that the final

amendments represent the most

appropriate option for covered entities

and individuals.

A. Application Process

Two commenters requested that the

FDIC reduce the section 19 application

burden. One commenter provided this

recommendation without specifying the

proposed changes. The other commenter

asked that the FDIC continually

streamline and simplify the application

process and not require court

documentation from an applicant

because the FDIC already has access to

criminal ‘‘rap sheets.’’ The FDIC notes

that it has periodically revised the SOP

over the past several decades, and it

anticipates that it will revise its section

19 regulations, as needed, in the future.

The FDIC revises its application

instructions as warranted to improve

clarity—such as by noting that bank-

sponsored applications and individual-

waiver applications are distinct

application processes, rather than a two-

step process—but a regulation is not the

appropriate method to amend the

application form. The FDIC declines to

adopt the proposal concerning court

records. Rap sheets generally do not

contain the level of detail needed to

adequately assess the circumstances

surrounding a crime and sentencing,

especially with regard to pretrial

diversions. Moreover, the court

documentation is used to confirm the

information provided by the applicant.

Two commenters made

recommendations concerning the FDIC’s

approval rate of section 19 applications.

The two commenters asked that the

FDIC simplify the application process to

encourage a higher number of

applicants, and one commenter asked

that the FDIC commit to significantly

increasing its application approval-rate.

The FDIC does clarify aspects of the

application instructions, as noted above

menters made

recommendations concerning the FDIC’s

approval rate of section 19 applications.

The two commenters asked that the

FDIC simplify the application process to

encourage a higher number of

applicants, and one commenter asked

that the FDIC commit to significantly

increasing its application approval-rate.

The FDIC does clarify aspects of the

application instructions, as noted above.

The FDIC anticipates that the expansion

of the de minimis framework and the

exclusion of all expungements and

sealed-records orders from the scope of

section 19 will reduce the number of

applications required. The FDIC,

however, declines to commit to an

increase in approval rates, since doing

so would be arbitrary, and applications

are reviewed on a case-by-case basis.

One commenter asked that the FDIC

relax approval conditions for bank-

sponsored applications. The FDIC

declines to adopt this proposal, because

the approval conditions are meant to

address the specific position being

sought at a particular IDI.

One commenter proposed that the

FDIC not require the repayment of fees

or fines before the submission of an

application. The FDIC declines to adopt

this proposal in full. Rehabilitation is a

significant factor that is evaluated

during the application process, and

completion of all sentencing

requirements is an integral part of

rehabilitation. As such, the case must be

considered final by the procedures of

the applicable jurisdiction. The FDIC

notes, however, that an individual is not

required to have completed all

sentencing requirements in order to

qualify for the de minimis exceptions

pertaining to convictions or program

entries for (i) ‘‘bad’’ or insufficient funds

checks, and (ii) the creation, possession,

or use of a fake, false, or altered

identification to circumvent age-based

restrictions.

One commenter asked that the FDIC

delegate more authority to process

section 19 applications to FDIC regional

offices

ements in order to

qualify for the de minimis exceptions

pertaining to convictions or program

entries for (i) ‘‘bad’’ or insufficient funds

checks, and (ii) the creation, possession,

or use of a fake, false, or altered

identification to circumvent age-based

restrictions.

One commenter asked that the FDIC

delegate more authority to process

section 19 applications to FDIC regional

offices. The FDIC believes that the

current delegations are appropriate and

provide more consistency and

uniformity in decision-making.

Moreover, the FDIC anticipates that the

expansion of the de minimis framework

will result in more decision-making at

the regional-office level, as regional

office staff typically respond to inquiries

as to whether the de minimis exception

applies to particular offenses.

Two commenters requested that the

FDIC commit to reducing application-

processing times by certain amounts. In

response, the FDIC notes that while the

agency tries to process applications

quickly, the establishment of such a

timeline would be an internal-

processing matter and would not fall

within the purpose or intent of the rule.

Moreover, application processing is

dependent upon receipt of background

investigation materials from other

agencies, whose timeframes for action

the FDIC does not control.

One commenter made several

proposals concerning an applicant’s

rehabilitation, requesting that the FDIC

do the following: provide a checklist of

rehabilitation factors, assess

rehabilitation relative to the position

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the FDIC does not control.

One commenter made several

proposals concerning an applicant’s

rehabilitation, requesting that the FDIC

do the following: provide a checklist of

rehabilitation factors, assess

rehabilitation relative to the position

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sought by the applicant, set maximum

limits on rehabilitation time, and relax

rehabilitation standards. The FDIC may

provide additional information in the

application instructions and in the

publication Your Complete Guide to

Section 19, but the rule is not the

appropriate forum to provide this

information. The FDIC declines to adopt

the other proposals. For bank-sponsored

applications, the FDIC already considers

rehabilitation relative to the position

sought by the applicant. However,

individual waivers allow a person to

work in any position, so this proposal

is not feasible for such applications.

Rehabilitation, in the context of

individual waivers, is not assessed

relative to any potential position but

rather to the nature of the covered

offense. The FDIC does not adopt the

proposal concerning setting maximum

limits on rehabilitation time because the

agency believes that such limits would

be arbitrary. Nor does the FDIC adopt

the proposal concerning the relaxation

of rehabilitation standards.

Rehabilitation in relation to the nature

of the offense is one of the standards

that is assessed when the FDIC

processes applications, and the de

minimis exception, as amended,

provides sufficient flexibility.

Three commenters made proposals

concerning transparency, asking that the

FDIC improve its web resources, issue

written denials (rather than ask an

applicant to withdraw an application),

and publicize more application data

of the offense is one of the standards

that is assessed when the FDIC

processes applications, and the de

minimis exception, as amended,

provides sufficient flexibility.

Three commenters made proposals

concerning transparency, asking that the

FDIC improve its web resources, issue

written denials (rather than ask an

applicant to withdraw an application),

and publicize more application data.

The FDIC believes that its website,

www.fdic.gov, specifically the brochure

Your Complete Guide to Section 19,

available at https://www.fdic.gov/

regulations/applications/resources/

brochure-section-19.pdf, provides

sufficient and convenient resources in a

single location. The FDIC also notes that

a regulation is not the appropriate

mechanism to apply such a requirement

on the FDIC. As for the request

concerning written denials, the FDIC

cannot issue a denial if an individual

chooses not to proceed with an

application. The FDIC already publishes

the orders for approvals and denials of

section 19 applications on its website—

specifically, on the FDIC Enforcement

Decisions and Orders page (https://

orders.fdic.gov/s/searchform), which is

searchable—and aggregates numbers of

all section 19 applications processed in

its annual report. A regulation is not the

appropriate method to apply such a

requirement on the FDIC.

B. Bank Hiring Practices

Four commenters suggested that the

FDIC revise policies concerning bank

hiring practices. Two commenters asked

that the FDIC clarify that banks are

allowed to delay inquiry into an

applicant’s criminal history until after a

job offer is extended. The FDIC notes

that this approach is already stated as

permissible in the SOP for FDIC-

supervised banks. To the extent that the

commenters request that the FDIC direct

IDIs to follow this practice, the FDIC

declines to make this change for several

reasons

at the FDIC clarify that banks are

allowed to delay inquiry into an

applicant’s criminal history until after a

job offer is extended. The FDIC notes

that this approach is already stated as

permissible in the SOP for FDIC-

supervised banks. To the extent that the

commenters request that the FDIC direct

IDIs to follow this practice, the FDIC

declines to make this change for several

reasons. First, the FDIC does not have

primary supervisory authority over IDIs

that are subject to the supervisory

authority of other Federal banking

agencies (FBAs). Therefore, it is within

the supervisory authority of the other

FBAs to determine what is satisfactory

to them in reviewing which policies and

procedures their respective institutions

adopt to ensure compliance with section

19. Second, the FDIC’s authority under

section 19 focuses on the review needed

to provide consent to remove the bar

imposed by section 19 and allow an

individual to participate in the affairs of

an IDI. It does not grant the FDIC

rulemaking authority to impose

conditions or requirements on an IDI

other than to note that the IDI faces a

criminal penalty for acting in violation

of the statute.

Two commenters asked that the FDIC

clarify what constitutes a ‘‘reasonable

inquiry’’ for a bank background check.

The FDIC declines to adopt this

proposal. The procedures that constitute

a reasonable inquiry will vary from bank

to bank, and the FDIC believes that this

determination is best left to the business

judgments of these institutions.

C. Coverage of Section 19

Five commenters requested that the

FDIC change its interpretation of the

coverage of section 19. One commenter

asked that the SOP note that Federal law

preempts state and local law concerning

section 19. The FDIC believes that it is

inappropriate to include such a

statement in this regulation but notes

that section 19 applies to all IDIs, as

defined under Title 12 of the U.S. Code

ion 19

Five commenters requested that the

FDIC change its interpretation of the

coverage of section 19. One commenter

asked that the SOP note that Federal law

preempts state and local law concerning

section 19. The FDIC believes that it is

inappropriate to include such a

statement in this regulation but notes

that section 19 applies to all IDIs, as

defined under Title 12 of the U.S. Code.

One commenter asked that the FDIC

further clarify whether independent

contractors and other individuals are

considered institution-affiliated parties

(IAPs), for section 19 purposes. The

FDIC believes that additional

clarification is unnecessary because the

FDIC’s revised section 19 regulations, 12

U.S.C. 1813(u) and its related caselaw,

as well as other statutory and regulatory

provisions, provide ample clarification

as to who qualifies as an IAP under Title

12 of the U.S. Code.

Two commenters asked that the FDIC

recommend changes to section 19 to

Congress. This request is outside the

scope of this rulemaking.

Four commenters requested that the

FDIC establish a time limit on covered

offenses, whereby offenses would be

‘‘washed out,’’ for section 19 purposes,

after a certain period of time has passed.

The FDIC notes that certain covered

offenses—such as money laundering—

have a mandatory 10-year prohibition

period, absent court approval, under 12

U.S.C. 1829(a)(2). Therefore, the FDIC

could not grant a section 19 waiver for

an applicant convicted under a crime

listed in section 1829(a)(2) without

Congress amending section 19. For

covered offenses that are not specifically

listed under section 1829(a)(2), the FDIC

declines to provide a blanket washout

rule. Section 19 has no maximum time

limit for how long an individual is

prohibited from participation at an IDI.

Congress would have to change section

19 for the FDIC to implement such a

proposal. However, the FDIC notes that

the expanded de minimis framework

provides significant regulatory relief.

D

ically

listed under section 1829(a)(2), the FDIC

declines to provide a blanket washout

rule. Section 19 has no maximum time

limit for how long an individual is

prohibited from participation at an IDI.

Congress would have to change section

19 for the FDIC to implement such a

proposal. However, the FDIC notes that

the expanded de minimis framework

provides significant regulatory relief.

D. Covered Offenses

One commenter requested that the

FDIC narrow the definition of ‘‘pretrial

diversion’’ in the SOP. The FDIC

declines to adopt this proposal and

believes that the existing SOP language

adequately and fairly describes pretrial

diversion program entries.

Two commenters proposed that the

FDIC reduce the type of offenses

covered by the SOP. The FDIC declines

to adopt these proposals. The types of

offenses covered by section 19 are

broadly defined in the statute as those

involving dishonesty, breach of trust, or

money laundering. The FDIC

determines whether certain crimes

involve such elements under section 19

when the FDIC processes applications.

A change to the text of section 19 would

require legislation. Moreover, the

regulation will codify certain minor

crimes as de minimis, which will

exclude such crimes from requiring an

application.

E. De minimis Exception

Two commenters asked that the time

actually served in jail component of the

de minimis exception be amended to

exclude instances where the applicant

only served pretrial detention. The FDIC

declines to adopt this proposal because

pretrial detention is typically

incorporated into the ultimate sentence

as time served.

One commenter proposed that the

maximum time served be increased to

three years, and that other restrictions

on the freedom of movement (such as

probation), be excluded from being

considered actual time served

applicant

only served pretrial detention. The FDIC

declines to adopt this proposal because

pretrial detention is typically

incorporated into the ultimate sentence

as time served.

One commenter proposed that the

maximum time served be increased to

three years, and that other restrictions

on the freedom of movement (such as

probation), be excluded from being

considered actual time served. The FDIC

notes that the ‘‘time served’’ factor does

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7 12 CFR part 303, subpart L and 12 CFR part 308,

subpart M.

8 44 U.S.C. 3501 et seq.

9 5 U.S.C. 601 et seq.

10 The SBA defines a small banking organization

as having $600 million or less in assets, where an

organization’s ‘‘assets are determined by averaging

the assets reported on its four quarterly financial

statements for the preceding year.’’ See 13 CFR

121.201 (as amended by 84 FR 34261 (July 18,

2019), effective August 19, 2019). In its

determination, the ‘‘SBA counts the receipts,

employees, or other measure of size of the concern

whose size is at issue and all of its domestic and

foreign affiliates.’’ See 13 CFR 121.103. Following

these regulations, the FDIC uses a covered entity’s

affiliated and acquired assets, averaged over the

preceding four quarters, to determine whether the

covered entity is ‘‘small’’ for the purposes of RFA.

11 FDIC Call Report, December 31, 2019.

12 Application Tracking System.

13 (115/3,815) * 100 = 3.01 percent.

not apply to individuals on probation or

parole who may be restricted to a

particular jurisdiction, or who must

report occasionally to an individual or

to a specified location

he

preceding four quarters, to determine whether the

covered entity is ‘‘small’’ for the purposes of RFA.

11 FDIC Call Report, December 31, 2019.

12 Application Tracking System.

13 (115/3,815) * 100 = 3.01 percent.

not apply to individuals on probation or

parole who may be restricted to a

particular jurisdiction, or who must

report occasionally to an individual or

to a specified location. The FDIC further

notes that the ‘‘time served’’ factor does

not apply to individuals who are

restricted to a substance abuse treatment

program facility for part or all of the

day. The ‘‘time served’’ factor applies to

individuals confined to a psychiatric

treatment center in lieu of a jail, prison,

or house of correction on mental-

competency grounds, but not to

individuals ordered to attend outpatient

psychiatric treatment. The FDIC

declines to further expand the time-

served component, because the FDIC

believes that this proposal is too

expansive.

Two commenters asked that the FDIC

expand the de minimis exception for

offenses committed by persons aged 21

or younger. One proposal called for the

elimination of the maximum-

punishment factor. The FDIC declines to

expand the de minimis framework

beyond the significant revisions

outlined in Section III, which revisions

pertain, in part, to offenses committed

by persons 21 years of age or younger.

One commenter asked that the FDIC

exclude entirely from consideration all

offenses that occurred before a certain,

relatively young age. The FDIC believes

that this request is too expansive and

declines to adopt the proposal.

Three commenters recommended that

the FDIC increase the actual jail-time-

served factor. The FDIC declines to

further expand the de minimis

framework beyond the significant

revisions outlined in Section III.

One commenter suggested that the

FDIC increase the ‘‘bad’’ or insufficient

funds check(s) threshold from $1,000 to

$2,500

equest is too expansive and

declines to adopt the proposal.

Three commenters recommended that

the FDIC increase the actual jail-time-

served factor. The FDIC declines to

further expand the de minimis

framework beyond the significant

revisions outlined in Section III.

One commenter suggested that the

FDIC increase the ‘‘bad’’ or insufficient

funds check(s) threshold from $1,000 to

$2,500. The FDIC declines to expand the

de minimis framework as proposed,

because the FDIC considers the current

threshold appropriate.

One commenter asked that the FDIC

expand the maximum potential

incarceration period for a covered

offense from one year to three years,

under the de minimis framework. The

FDIC declines to further expand the de

minimis exception beyond the

significant revisions outlined in Section

III and believes that the current

threshold is appropriate.

F. Status Quo, or Issuing the Rule as

Originally Proposed

The FDIC also considered the status

quo alternative of retaining the existing

section 19 SOP and regulations, as well

as issuing the rule as originally

proposed.7 The FDIC, however, believes

that the rule further clarifies the FDIC’s

application of section 19 and the

application process for IDIs and

individuals who seek relief from its

provisions, while posing no substantive

costs, relative to the status quo

alternative. Additionally, the FDIC

believes that the changes adopted more

accurately reflect the risk of dishonesty,

breach of trust, and money laundering

posed by the potential employment of

certain individuals to institutions. None

of the commenters advocated for the

status quo alternative. Moreover, the

revisions made between the proposal

and the final rule should result in

significant regulatory relief for IDIs and

individuals.

V

the changes adopted more

accurately reflect the risk of dishonesty,

breach of trust, and money laundering

posed by the potential employment of

certain individuals to institutions. None

of the commenters advocated for the

status quo alternative. Moreover, the

revisions made between the proposal

and the final rule should result in

significant regulatory relief for IDIs and

individuals.

V. Regulatory Analysis

The Paperwork Reduction Act

In accordance with the requirements

of the Paperwork Reduction Act (PRA),8

the FDIC may not conduct or sponsor,

and the respondent is not required to

respond to, an information collection

unless it displays a currently valid

Office of Management and Budget

(OMB) control number.

The rule includes clarification of

reporting requirements in an existing

FDIC information collection entitled

Application Pursuant to Section 19 of

the Federal Deposit Insurance Act

(3064–0018) that should result in a

decrease in the number of applications

filed. However, the FDIC does not

currently have access to data that would

enable it to accurately estimate what the

actual decrease may be. As such, the

FDIC does not believe that a change to

the number of respondents or the PRA

burden in its existing information

collection is necessary at this time. The

FDIC will continue to monitor the

number of applications received going

forward, and will incorporate any

changes in future submissions,

including the next information-

collection renewal. Therefore, no

information collection request will be

submitted to the OMB for review

o

the number of respondents or the PRA

burden in its existing information

collection is necessary at this time. The

FDIC will continue to monitor the

number of applications received going

forward, and will incorporate any

changes in future submissions,

including the next information-

collection renewal. Therefore, no

information collection request will be

submitted to the OMB for review.

The Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA)

generally requires an agency, in

connection with a proposed rule, to

prepare and make available for public

comment an initial regulatory flexibility

analysis that describes the impact of a

rule on small entities.9 However, a

regulatory flexibility analysis is not

required if the agency certifies that the

rule will not have a significant

economic impact on a substantial

number of small entities. The Small

Business Administration (SBA) has

defined ‘‘small entities’’ to include

banking organizations with total assets

of less than or equal to $600 million that

are independently owned and operated

or owned by a holding company with

less than or equal to $600 million in

total assets.10 Generally, the FDIC

considers a significant effect to be a

quantified effect in excess of 5 percent

of total annual salaries and benefits per

institution, or 2.5 percent of total

noninterest expenses. The FDIC believes

that effects in excess of these thresholds

typically represent significant effects for

FDIC-supervised institutions. As

discussed further below, the FDIC

certifies that this rule will not have a

significant economic impact on a

substantial number of FDIC-supervised

small entities.

The FDIC insures 5,186 depository

institutions, of which 3,815 are defined

as small banking organizations

according to the RFA.11 In the period

from 2014 through 2019, the FDIC

received 33 bank-sponsored section 19

applications from small, FDIC-insured

institutions, an average of about 6 per

year

e a

significant economic impact on a

substantial number of FDIC-supervised

small entities.

The FDIC insures 5,186 depository

institutions, of which 3,815 are defined

as small banking organizations

according to the RFA.11 In the period

from 2014 through 2019, the FDIC

received 33 bank-sponsored section 19

applications from small, FDIC-insured

institutions, an average of about 6 per

year. Additionally, the FDIC received

654 section 19 applications from

individuals during the same period, an

average of 109 per year.12 To determine

the maximum number of small, FDIC-

supervised institutions who could be

affected by the rule, this analysis

assumes that each applicant is seeking

employment at a different bank; each

bank is a small, FDIC-insured

institution; and no FDIC-insured

institutions or individuals are affected

except those who have submitted

section 19 applications. Based on these

assumptions, 115 (3.0 percent of) small,

FDIC-insured institutions on average,

annually, would be affected by the

rule.13 However, in the FDIC’s

experience, section 19 applications from

individuals are compelled by the

applicant’s intent to seek employment at

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14 12 U.S.C. 4809.

15 12 U.S.C. 4802(a).

16 12 U.S.C. 4802.

17 5 U.S.C. 801 et seq.

18 5 U.S.C. 801(a)(3).

19 5 U.S.C. 804(2).

FDIC-insured institutions that are

generally not small. Therefore, the FDIC

believes that the number of small, FDIC-

insured institutions affected by the rule

could be less than 115.

As described previously, the rule

incorporates and revises the current

content of the SOP into the FDIC’s

regulations

16 12 U.S.C. 4802.

17 5 U.S.C. 801 et seq.

18 5 U.S.C. 801(a)(3).

19 5 U.S.C. 804(2).

FDIC-insured institutions that are

generally not small. Therefore, the FDIC

believes that the number of small, FDIC-

insured institutions affected by the rule

could be less than 115.

As described previously, the rule

incorporates and revises the current

content of the SOP into the FDIC’s

regulations. The FDIC considers

individuals who have been convicted of

a crime of dishonesty, breach of trust, or

money laundering, who participate in

the affairs of an IDI without the prior

written consent of the FDIC, to be

subject to section 19, and will continue

to do so under the rule. The rule will,

however, expand the scope of the de

minimis exception and, therefore,

expand the number of offenses that will

not require an application under section

19. Both of these changes will likely

result in a reduction in section 19

applications.

To the extent that the current content

of the SOP conveys any ambiguity as to

the FDIC’s application of section 19 or

the application process, the rule will

benefit covered entities by further

clarifying this topic and process. Based

on the FDIC’s estimate, mentioned

earlier, that the rule could affect about

3 percent of small FDIC-insured

institutions per year, such effects are

likely to be relatively small.

To the extent that the revised

consideration of expungements,

reduction in waiting periods, increases

in certain small-dollar simple-theft

convictions, or other items provide

relief to certain small institutions or

individuals, the FDIC believes that such

effects are likely to be relatively small.

As discussed previously, some of these

changes are being adopted to establish

better alignment with other regulatory

limits or more-consistent treatment of

individuals. Other revisions are

intended to reduce regulatory burden on

individuals and IDIs by decreasing the

number of applications that would

otherwise be required under section 19

t such

effects are likely to be relatively small.

As discussed previously, some of these

changes are being adopted to establish

better alignment with other regulatory

limits or more-consistent treatment of

individuals. Other revisions are

intended to reduce regulatory burden on

individuals and IDIs by decreasing the

number of applications that would

otherwise be required under section 19.

The FDIC believes that such changes

more accurately reflect the risk of

dishonesty and breach of trust posed by

the potential employment of certain

individuals to small institutions. Again,

based on the FDIC’s estimate,

mentioned earlier, that the rule could

affect about 3 percent of small FDIC-

insured institutions per year, such

effects are likely to be relatively small.

Based on the information above, the

FDIC certifies that the rule will not have

a significant economic impact on a

substantial number of small entities.

Plain Language

Section 722 of the Gramm-Leach-

Bliley Act 14 requires each FBA to use

plain language in all of its proposed and

final rules published after January 1,

2000. The FDIC has sought to present

the rule in a simple and straightforward

manner. The FDIC did not receive any

comments on the use of plain language.

Riegle Community Development and

Regulatory Improvement Act of 1994

Under section 302(a) of the Riegle

Community Development and

Regulatory Improvement Act

(RCDRIA),15 in determining the effective

date and administrative compliance

requirements for new regulations that

impose additional reporting, disclosure,

or other requirements on IDIs, each FBA

must consider, consistent with

principles of safety and soundness and

the public interest, any administrative

burdens that such regulations would

place on depository institutions,

including small depository institutions,

and customers of depository

institutions, as well as the benefits of

such regulations

t

impose additional reporting, disclosure,

or other requirements on IDIs, each FBA

must consider, consistent with

principles of safety and soundness and

the public interest, any administrative

burdens that such regulations would

place on depository institutions,

including small depository institutions,

and customers of depository

institutions, as well as the benefits of

such regulations. In addition, section

302(b) of the RCDRIA requires new

regulations and amendments to

regulations that impose additional

reporting, disclosures, or other new

requirements on IDIs generally to take

effect on the first day of a calendar

quarter that begins on or after the date

on which the regulations are published

in final form.16

The FDIC has determined that the

final rule would not impose additional

reporting, disclosure, or other

requirements on IDIs; therefore, the

requirements of the RCDRIA do not

apply. Therefore, in conjunction with

the RCDRIA, the rule will be effective

on September 21, 2020.

The Congressional Review Act

For purposes of Congressional Review

Act, the OMB makes a determination as

to whether a final rule constitutes a

‘‘major’’ rule.17 If a rule is deemed a

‘‘major rule’’ by the OMB, the

Congressional Review Act generally

provides that the rule may not take

effect until at least 60 days following its

publication.18

The Congressional Review Act defines

a ‘‘major rule’’ as any rule that the

Administrator of the Office of

Information and Regulatory Affairs of

the OMB finds has resulted in or is

likely to result in: (A) An annual effect

on the economy of $100,000,000 or

more; (B) a major increase in costs or

prices for consumers, individual

industries, Federal, State, or local

government agencies or geographic

regions; or (C) significant adverse effects

on competition, employment,

investment, productivity, innovation, or

on the ability of United States-based

enterprises to compete with foreign-

based enterprises in domestic and

export markets.19

The OMB has

(B) a major increase in costs or

prices for consumers, individual

industries, Federal, State, or local

government agencies or geographic

regions; or (C) significant adverse effects

on competition, employment,

investment, productivity, innovation, or

on the ability of United States-based

enterprises to compete with foreign-

based enterprises in domestic and

export markets.19

The OMB has determined that the

final rule is not a major rule for

purposes of the Congressional Review

Act, and the FDIC will submit the final

rule and other appropriate reports to

Congress and the Government

Accountability Office for review.

List of Subjects

12 CFR Part 303

Administrative practice and

procedure.

12 CFR Part 308

Rules of practice and procedure.

Authority and Issuance

For the reasons stated in the preamble

and under the authority of 12 U.S.C.

1819 (Seventh and Tenth), the FDIC

amends 12 CFR parts 303 and 308 as

follows:

PART 303—FILING PROCEDURES

■1. The authority citation for part 303

continues to read as follows:

Authority: 12 U.S.C. 378, 1464, 1813, 1815,

1817, 1818, 1819(a) (Seventh and Tenth),

1820, 1823, 1828, 1831a, 1831e, 1831o,

1831p–1, 1831w, 1835a, 1843(l), 3104, 3105,

3108, 3207, 5414, 5415, and 15 U.S.C. 1601–

1607.

■2. Revise subpart L to read as follows:

Subpart L—Section 19 of the FDI Act

(Consent to Service of Persons Convicted

of, or Who Have Program Entries for,

Certain Criminal Offenses)

Sec.

303.220

What is section 19 of the FDI Act?

303.221

Who is covered by section 19?

303.222

What offenses are covered under

section 19?

303.223

What constitutes a conviction

under section 19?

303.224

What constitutes a pretrial

diversion or similar program (program

entry) under section 19?

303.225

What are the types of applications

that can be filed?

303.226

When must an application be filed?

303.227

When is an application not

required for a covered offense or program

entry (de minimis offenses)?

303.228

How to file an application

t constitutes a conviction

under section 19?

303.224

What constitutes a pretrial

diversion or similar program (program

entry) under section 19?

303.225

What are the types of applications

that can be filed?

303.226

When must an application be filed?

303.227

When is an application not

required for a covered offense or program

entry (de minimis offenses)?

303.228

How to file an application.

303.229

How an application is evaluated.

303.230

What will the FDIC do if the

application is denied?

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303.231

Waiting time for a subsequent

application if an application is denied.

Subpart L—Section 19 of the FDI Act

(Consent to Service of Persons

Convicted of, or Who Have Program

Entries for, Certain Criminal Offenses)

§ 303.220

What is section 19 of the FDI

Act?

(a) This subpart covers applications

under section 19 of the Federal Deposit

Insurance Act (FDI Act), 12 U.S.C. 1829.

Under section 19, any person who has

been convicted of any criminal offense

involving dishonesty, breach of trust, or

money laundering, or has agreed to

enter into a pretrial diversion or similar

program (program entry) in connection

with a prosecution for such offense, may

not become, or continue as, an

institution-affiliated party (IAP) of an

insured depository institution (IDI); own

or control, directly or indirectly, any

IDI; or otherwise participate, directly or

indirectly, in the conduct of the affairs

of any IDI without the prior written

consent of the FDIC.

on or similar

program (program entry) in connection

with a prosecution for such offense, may

not become, or continue as, an

institution-affiliated party (IAP) of an

insured depository institution (IDI); own

or control, directly or indirectly, any

IDI; or otherwise participate, directly or

indirectly, in the conduct of the affairs

of any IDI without the prior written

consent of the FDIC.

(b) In addition, the law bars an IDI

from permitting such a person to engage

in any conduct or to continue any

relationship prohibited by section 19.

IDIs should therefore make a reasonable

inquiry regarding an applicant’s history

to ensure that a person who has a

conviction or program entry covered by

the provisions of section 19 is not hired

or permitted to participate in its affairs

without the written consent of the FDIC

issued under this subpart. FDIC-

supervised IDIs may extend a

conditional offer of employment

contingent on the completion of a

background check satisfactory to the

institution and to determine if the

applicant is barred under section 19, but

the job applicant may not work for, be

employed by, or otherwise participate in

the affairs of the IDI until the IDI has

determined that the applicant is not

barred under section 19.

(c) If there is a conviction or program

entry covered by the bar of section 19,

an application under this subpart must

be filed seeking the FDIC’s consent to

become, or to continue as, an IAP; to

own or control, directly or indirectly, an

IDI; or to otherwise participate, directly

or indirectly, in the affairs of the IDI.

The application must be filed, and

consented to, prior to serving in any of

the foregoing capacities unless such

application is not required under the

subsequent provisions of this subpart

filed seeking the FDIC’s consent to

become, or to continue as, an IAP; to

own or control, directly or indirectly, an

IDI; or to otherwise participate, directly

or indirectly, in the affairs of the IDI.

The application must be filed, and

consented to, prior to serving in any of

the foregoing capacities unless such

application is not required under the

subsequent provisions of this subpart.

The purpose of an application is to

provide the applicant an opportunity to

demonstrate that, notwithstanding the

bar, a person is fit to participate in the

conduct of the affairs of an IDI without

posing a risk to its safety and soundness

or impairing public confidence in that

institution. The burden is upon the

applicant to establish that the

application warrants approval.

§ 303.221

Who is covered by section 19?

(a) Section 19 covers IAPs, as defined

by 12 U.S.C. 1813(u), and others who

are participants in the conduct of the

affairs of an IDI. Therefore, all

employees of an IDI that fall within the

scope of section 19, including de facto

employees, as determined by the FDIC

based upon generally applicable

standards of employment law, will also

be subject to section 19. Whether other

persons who are not IAPs are covered

depends upon their degree of influence

or control over the management or

affairs of an IDI. In the context of the

FDIC’s application of section 19,

coverage would apply to an IDI’s

holding company’s directors and

officers to the extent that they have the

power to define and direct the

management or affairs of an IDI.

Similarly, directors and officers of

affiliates, subsidiaries or joint ventures

of an IDI or its holding company will be

covered if they participate in the affairs

of the IDI or are in a position to

influence or control the management or

affairs of the insured institution.

Typically, an independent contractor

does not have a relationship with the

IDI other than the activity for which the

institution has contracted

ficers of

affiliates, subsidiaries or joint ventures

of an IDI or its holding company will be

covered if they participate in the affairs

of the IDI or are in a position to

influence or control the management or

affairs of the insured institution.

Typically, an independent contractor

does not have a relationship with the

IDI other than the activity for which the

institution has contracted. An

independent contractor who influences

or controls the management or affairs of

the IDI would be covered by section 19.

(b) The term ‘‘person,’’ for purposes of

section 19, means an individual, and

does not include a corporation, firm, or

other business entity.

(c) Individuals who file an application

with the FDIC under the provisions of

section 19 who also seek to participate

in the affairs of a bank holding company

or savings and loan holding company

may have to comply with any filing

requirements of the Board of the

Governors of the Federal Reserve

System under 12 U.S.C. 1829(d) and (e).

(d) Section 19 specifically prohibits a

person subject to its provisions from

owning or controlling an IDI. The terms

‘‘control’’ and ‘‘ownership’’ under

section 19 shall have the meaning given

to the term ‘‘control’’ in the Change in

Bank Control Act (12 U.S.C.

1817(j)(8)(B)). A person will be deemed

to exercise ‘‘control’’ if that person has

the power to vote 25 percent or more of

the voting shares of an IDI (or 10 percent

of the voting shares if no other person

has more shares) or the ability to direct

the management or policies of the

institution. Under the same standards, a

person will be deemed to ‘‘own’’ an IDI

if that person owns 25 percent or more

of the institution’s voting stock, or 10

percent of the voting shares if no other

person owns more. These standards

would also apply to an individual acting

in concert with others so as to have such

ownership or control

bility to direct

the management or policies of the

institution. Under the same standards, a

person will be deemed to ‘‘own’’ an IDI

if that person owns 25 percent or more

of the institution’s voting stock, or 10

percent of the voting shares if no other

person owns more. These standards

would also apply to an individual acting

in concert with others so as to have such

ownership or control. Absent the FDIC’s

consent, persons subject to the

prohibitions of section 19 will be

required to divest their control or

ownership of shares above the foregoing

limits.

§ 303.222

What offenses are covered

under section 19?

(a) The conviction or program entry

must be for a criminal offense involving

dishonesty, breach of trust, or money

laundering. ‘‘Dishonesty’’ means

directly or indirectly to cheat or

defraud, to cheat or defraud for

monetary gain or its equivalent, or

wrongfully to take property belonging to

another in violation of any criminal

statute. Dishonesty includes acts

involving want of integrity, lack of

probity, or a disposition to distort,

cheat, or act deceitfully or fraudulently,

and includes offenses that Federal, state

or local laws define as dishonest.

‘‘Breach of trust’’ means a wrongful act,

use, misappropriation, or omission with

respect to any property or fund that has

been committed to a person in a

fiduciary or official capacity, or the

misuse of one’s official or fiduciary

position to engage in a wrongful act,

use, misappropriation, or omission.

(b) Whether a crime involves

dishonesty, breach of trust, or money

laundering will be determined from the

statutory elements of the offense itself or

from court determinations that the

statutory provisions of the offense

involve dishonesty, breach of trust, or

money laundering.

isuse of one’s official or fiduciary

position to engage in a wrongful act,

use, misappropriation, or omission.

(b) Whether a crime involves

dishonesty, breach of trust, or money

laundering will be determined from the

statutory elements of the offense itself or

from court determinations that the

statutory provisions of the offense

involve dishonesty, breach of trust, or

money laundering.

(c) All convictions or program entries

for offenses concerning the illegal

manufacture, sale, distribution of, or

trafficking in controlled substances shall

require an application unless no

application is required under this

subpart. Convictions or program entries

for criminal offenses involving the

simple possession of a controlled

substance are not covered under section

19.

§ 303.223

What constitutes a conviction

under section 19?

(a) Convictions requiring an

application. There must be a conviction

of record. Section 19 does not cover

arrests or pending cases not brought to

trial, unless the person has a program

entry as set out in § 303.224. Section 19

does not cover acquittals or any

conviction that has been reversed on

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appeal, unless the reversal was for the

purpose of re-sentencing. A conviction

with regard to which an appeal is

pending requires an application. A

conviction for which a pardon has been

granted will require an application.

(b) Convictions not requiring an

application. When an individual is

charged with a covered offense and, in

the absence of a program entry as set out

in § 303.224, is subsequently convicted

of an offense that is not a covered

offense, the conviction is not subject to

section 19.

pending requires an application. A

conviction for which a pardon has been

granted will require an application.

(b) Convictions not requiring an

application. When an individual is

charged with a covered offense and, in

the absence of a program entry as set out

in § 303.224, is subsequently convicted

of an offense that is not a covered

offense, the conviction is not subject to

section 19.

(c) Expungements. If an order of

expungement or an order to seal has

been issued in regard to a conviction, or

if a record has been otherwise expunged

by operation of law, then the conviction

shall not be considered a conviction of

record and shall not require an

application.

(d) Youthful offenders. An

adjudication by a court against a person

as a ‘‘youthful offender’’ under any

youth-offender law applicable to minors

as defined by state law, or any judgment

as a ‘‘juvenile delinquent’’ by any court

having jurisdiction over minors as

defined by state law, does not require an

application. Such an adjudication does

not constitute a matter covered under

section 19 and is not a conviction or

program entry for determining the

applicability of § 303.227.

§ 303.224

What constitutes a pretrial

diversion or similar program (program

entry) under section 19?

(a) A program entry is characterized

by a suspension or eventual dismissal or

reversal of charges or criminal

prosecution upon agreement, whether

formal or informal, by the accused to

treatment, rehabilitation, restitution, or

other non-criminal or non-punitive

alternatives. Whether the outcome of a

case constitutes a program entry is

determined by relevant Federal, State,

or local law, and, if not so designated

under applicable law, then the

determination of whether a disposition

is a program entry will be made by the

FDIC on a case-by-case basis. Program

entries prior to November 29, 1990, are

not covered by section 19.

minal or non-punitive

alternatives. Whether the outcome of a

case constitutes a program entry is

determined by relevant Federal, State,

or local law, and, if not so designated

under applicable law, then the

determination of whether a disposition

is a program entry will be made by the

FDIC on a case-by-case basis. Program

entries prior to November 29, 1990, are

not covered by section 19.

(b) When a covered offense either is

reduced by a program entry to an

offense that would otherwise not be

covered by section 19 or is dismissed

upon successful completion of a

program entry, the covered offense

remains a covered offense for purposes

of section 19. The covered offense will

require an application unless it is de

minimis as provided by § 303.227 of this

subpart.

(c) Expungements or sealings of

program entries will be treated the same

as those for convictions.

§ 303.225

What are the types of

applications that can be filed?

(a) Institution filing requirement

(bank-sponsored applications).

Applications are required to be filed by

the IDI, which intends for a person

covered by the provisions of section 19

to participate in its affairs. Bank-

sponsored applications shall be filed

with the appropriate FDIC Regional

Office, as required by this subpart.

(b) Waiver applications. If an IDI does

not file an application regarding an

individual, the individual may file a

request for a waiver of the institution

filing requirement. Such a waiver

application shall be filed with the

appropriate FDIC Regional Office and

shall set forth substantial good cause

why the application should be granted.

§ 303.226

When must an application be

filed?

Except for situations in which no

application is required under this

subpart, an application must be filed

when there is present a conviction by a

court of competent jurisdiction for a

covered offense by any adult or minor

treated as an adult, or when such person

has a program entry regarding that

offense

hy the application should be granted.

§ 303.226

When must an application be

filed?

Except for situations in which no

application is required under this

subpart, an application must be filed

when there is present a conviction by a

court of competent jurisdiction for a

covered offense by any adult or minor

treated as an adult, or when such person

has a program entry regarding that

offense. Before an application is

considered by the FDIC, all of the

sentencing requirements associated with

a conviction, or conditions imposed by

the program entry, including but not

limited to, imprisonment, fines,

condition of rehabilitation, and

probation requirements, must be

completed, and the case must be

considered final by the procedures of

the applicable jurisdiction. The FDIC’s

application forms as well as additional

information concerning section 19 can

be accessed at the FDIC’s regional

offices or on the FDIC’s website.

§ 303.227

When is an application not

required for a covered offense or program

entry (de minimis offenses)?

(a) In general. Approval is

automatically granted and an

application will not be required where

all of the following de minimis criteria

are met.

(1) The individual has been convicted

of, or has program entries for, no more

than two covered offenses, including

those subject to paragraph (b) of this

section; and for each covered offense, all

of the sentencing requirements

associated with the conviction, or

conditions imposed by the program

entry, have been completed (the

sentence- or program-completion

requirement does not apply under

paragraphs (b)(2) and (4) of this section);

program entries for, no more

than two covered offenses, including

those subject to paragraph (b) of this

section; and for each covered offense, all

of the sentencing requirements

associated with the conviction, or

conditions imposed by the program

entry, have been completed (the

sentence- or program-completion

requirement does not apply under

paragraphs (b)(2) and (4) of this section);

(2) Each covered 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 served

three days or less of jail time for each

covered offense. The FDIC considers jail

time to include any significant restraint

on an individual’s freedom of

movement which includes, as part of

the restriction, confinement to a specific

facility or building on a continuous

basis where the person may leave

temporarily only to perform specific

functions or during specified times

periods or both. Jail time includes

confinement to a psychiatric treatment

center in lieu of a jail, prison, or house

of correction on mental-competency

grounds. The definition is not intended

to include any of the following:

(i) Persons on probation or parole who

may be restricted to a particular

jurisdiction, or who must report

occasionally to an individual or to a

specified location;

(ii) Persons who are restricted to a

substance-abuse treatment program

facility for part or all of the day; and

(iii) Persons who are ordered to attend

outpatient psychiatric treatment;

(3) If there are two convictions or

program entries for a covered offense,

each conviction or program entry was

entered at least three years prior to the

date an application would otherwise be

required, except as provided in

paragraph (b)(1) of this section; and

(4) Each covered offense was not

committed against an IDI or insured

credit union.

o attend

outpatient psychiatric treatment;

(3) If there are two convictions or

program entries for a covered offense,

each conviction or program entry was

entered at least three years prior to the

date an application would otherwise be

required, except as provided in

paragraph (b)(1) of this section; and

(4) Each covered offense was not

committed against an IDI or insured

credit union.

(b) Other types of offenses for which

the de minimis exception applies and

no application is required—(1) Age of

person at time of covered offense. If

there are two convictions or program

entries for a covered offense, and the

actions that resulted in both convictions

or program entries all occurred when

the individual was 21 years of age or

younger, then the de minimis criteria in

paragraph (a)(3) of this section shall be

met if the convictions or program

entries were entered at least 18 months

prior to the date an application would

otherwise be required.

(2) Convictions or program entries for

insufficient funds checks. Convictions

or program entries of record based on

the writing of ‘‘bad’’ or insufficient

funds check(s) shall be considered de

minimis offenses under this provision if

the following conditions apply:

(i) The aggregate total face value of all

‘‘bad’’ or insufficient funds check(s)

cited across all the conviction(s) or

program entry(ies) for ‘‘bad’’ or

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insufficient funds checks is $1,000 or

less;

(ii) No IDI or insured credit union was

a payee on any of the ‘‘bad’’ or

insufficient funds checks that were the

basis of the conviction(s) or program

entry(ies); and

(iii) The individual has no more than

one other de minimis offense under this

section.

2

Federal Register / Vol. 85, No. 162 / Thursday, August 20, 2020 / Rules and Regulations

insufficient funds checks is $1,000 or

less;

(ii) No IDI or insured credit union was

a payee on any of the ‘‘bad’’ or

insufficient funds checks that were the

basis of the conviction(s) or program

entry(ies); and

(iii) The individual has no more than

one other de minimis offense under this

section.

(3) Convictions or program entries for

small-dollar, simple theft. Convictions

or program entries based on the simple

theft of goods, services, or currency (or

other monetary instrument) shall be

considered de minimis offenses under

this provision if the following

conditions apply. Simple theft excludes

burglary, forgery, robbery, identity theft,

and fraud.

(i) The value of the currency, goods,

or services taken is $1,000 or less;

(ii) The theft was not committed

against an IDI or insured credit union;

(iii) The individual has no more than

one other de minimis offense under this

section; and

(iv) If there are two de minimis

offenses under this section, each

conviction or program entry was entered

at least three years prior to the date an

application would otherwise be

required, or at least 18 months prior to

the date an application would otherwise

be required if the actions that resulted

in the conviction or program entry all

occurred when the individual was 21

years of age or younger.

(4) Convictions or program entries for

the use of a fake, false, or altered

identification. A conviction or program

entry for the creation or possession of a

fake, false, or altered form of

identification by a person under the age

of 21, or the use of a fake, false, or

altered form of identification by such a

person to circumvent age-based

restrictions on purchases, activities, or

premises entry, shall be considered a de

minimis offense under this provision if

the following conditions apply.

program

entry for the creation or possession of a

fake, false, or altered form of

identification by a person under the age

of 21, or the use of a fake, false, or

altered form of identification by such a

person to circumvent age-based

restrictions on purchases, activities, or

premises entry, shall be considered a de

minimis offense under this provision if

the following conditions apply.

(i) The individual has no more than

one other de minimis offense under this

section; and

(ii) If there are two de minimis

offenses under this section, each

conviction or program entry was entered

at least three years prior to the date an

application would otherwise be

required; or at least 18 months prior to

the date an application would otherwise

be required if the actions that resulted

in the conviction or program entry all

occurred when the individual was 21

years of age or younger.

(c) Fidelity bond coverage and

disclosure to institutions. Any person

who meets the criteria under this

section shall be covered by a fidelity

bond to the same extent as others in

similar positions, and shall disclose the

presence of the conviction(s) or program

entry(ies) to all IDIs in the affairs of

which he or she intends to participate.

(d) Non-qualifying convictions or

program entries. 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 set out in this

section.

§ 303.228

How to file an application.

Forms and instructions should be

obtained from the FDIC’s website

(www.fdic.gov), and the application

must be filed with the appropriate FDIC

Regional Director. The application must

be filed by an IDI on behalf of a person

(bank-sponsored) unless the FDIC grants

a waiver of that requirement (individual

waiver). Individual waivers will be

considered on a case-by-case basis

where substantial good cause for

granting a waiver is shown

om the FDIC’s website

(www.fdic.gov), and the application

must be filed with the appropriate FDIC

Regional Director. The application must

be filed by an IDI on behalf of a person

(bank-sponsored) unless the FDIC grants

a waiver of that requirement (individual

waiver). Individual waivers will be

considered on a case-by-case basis

where substantial good cause for

granting a waiver is shown. A person

may request an individual waiver and

file an application on her or his own

behalf within the same application. The

appropriate Regional Office for a bank-

sponsored application is the office

covering the state where the IDI’s home

office is located. The appropriate

Regional Office for an individual filing

for a waiver of the institution filing

requirement is the office covering the

state where the person resides. States

covered by each FDIC Regional Office

can be located on the FDIC’s website.

§ 303.229

How an application is evaluated.

(a) The ultimate determinations in

assessing an application are whether the

person has demonstrated his or her

fitness to participate in the conduct of

the affairs of an IDI, and whether the

affiliation, ownership, control, or

participation by the person in the

conduct of the affairs of the institution

may constitute a threat to the safety and

soundness of the institution or the

interests of its depositors or threaten to

impair public confidence in the

institution. In determining the degree of

risk, the FDIC will consider:

(1) Whether the conviction or program

entry is for a criminal offense involving

dishonesty, breach of trust, or money

laundering and the specific nature and

circumstances of the offense;

(2) Whether the participation directly

or indirectly by the person in any

manner in the conduct of the affairs of

the IDI constitutes a threat to the safety

and soundness of the institution or the

interests of its depositors or threatens to

impair public confidence in the

institution;

honesty, breach of trust, or money

laundering and the specific nature and

circumstances of the offense;

(2) Whether the participation directly

or indirectly by the person in any

manner in the conduct of the affairs of

the IDI constitutes a threat to the safety

and soundness of the institution or the

interests of its depositors or threatens to

impair public confidence in the

institution;

(3) Evidence of rehabilitation

including the person’s age at the time of

the covered offense, the amount of time

that has elapsed since the occurrence of

the conviction or program entry, and the

person’s employment history and full

legal history;

(4) The position to be held or the level

of participation by the person at an IDI;

(5) The amount of influence the

person will be able to exercise over the

operation, management, or affairs of an

IDI;

(6) The ability of management of the

IDI to supervise and control the person’s

activities;

(7) The level of ownership or control

the person will have at an insured

depository institution;

(8) The applicability of the IDI’s

fidelity bond coverage to the person;

and

(9) Any additional factors in the

specific case that appear relevant to the

application or the applicant including,

but not limited to, the opinion or

position of the primary Federal or State

regulator.

(b) The question of whether a person,

who was convicted of a crime or who

agreed to a program entry, was guilty of

that crime shall not be at issue in a

proceeding under this subpart or under

12 CFR part 308, subpart M.

(c) The foregoing factors will also be

applied by the FDIC to determine

whether the interests of justice are

served in seeking an exception in the

appropriate court when an application

is made to terminate the ten-year ban

prior to its expiration date under 12

U.S.C. 1829(a)(2) for certain Federal

offenses.

t issue in a

proceeding under this subpart or under

12 CFR part 308, subpart M.

(c) The foregoing factors will also be

applied by the FDIC to determine

whether the interests of justice are

served in seeking an exception in the

appropriate court when an application

is made to terminate the ten-year ban

prior to its expiration date under 12

U.S.C. 1829(a)(2) for certain Federal

offenses.

(d) All approvals and orders will be

subject to the condition that the person

be covered by a fidelity bond to the

same extent as others in similar

positions. In cases in which a waiver of

the institution filing requirement has

been granted to an individual, approval

of the application will also be

conditioned upon that person disclosing

the presence of the conviction(s) or

program entry(ies) to all IDIs in the

affairs of which he or she wishes to

participate.

(e) When deemed appropriate, bank-

sponsored applications are to allow the

person to work in a specific job at a

specific bank and may also be subject to

the additional conditions, including that

the prior consent of the FDIC will be

required for any proposed significant

changes in the person’s duties or

responsibilities. In the case of bank-

sponsored applications, such proposed

changes may, in the discretion of the

Regional Director, require a new

application.

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(f) In situations in which an approval

has been granted for a person to

participate in the affairs of a particular

IDI and the person subsequently seeks

to participate at another IDI, another

application must be submitted and

approved by the FDIC prior to the

person participating in the affairs of the

other IDI.

§ 303.230

What will the FDIC do if the

application is denied?

Regulations

(f) In situations in which an approval

has been granted for a person to

participate in the affairs of a particular

IDI and the person subsequently seeks

to participate at another IDI, another

application must be submitted and

approved by the FDIC prior to the

person participating in the affairs of the

other IDI.

§ 303.230

What will the FDIC do if the

application is denied?

(a) The FDIC will inform the applicant

in writing that the application has been

denied and summarize or cite the

relevant considerations specified in

§ 303.229 of this subpart.

(b) The denial will also notify the

applicant that a written request for a

hearing under 12 CFR part 308, subpart

M, may be filed with the Executive

Secretary within 60 days after the

denial. The request for a hearing must

include the relief desired, the grounds

supporting the request for relief, and

any supporting evidence.

§ 303.231

Waiting time for a subsequent

application if an application is denied.

An application under section 19 may

be made in writing at any time more

than one year after the issuance of a

decision denying an application under

section 19. If the original denial is

subject to a request for a hearing, then

the subsequent application may be filed

at any time more than one year after the

decision of the Board of Directors, or its

designee, denying the application. The

prohibition against participating in the

affairs of an IDI under section 19 shall

continue until the individual has been

granted consent in writing to participate

in the affairs of an IDI by the Board of

Directors or its designee.

PART 308—RULES OF PRACTICE AND

PROCEDURE

■3. The authority citation for part 308

continues to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

U.S.C. 93(b), 164, 505, 1464, 1467(d), 1467a,

1468, 1815(e), 1817, 1818, 1819, 1820, 1828,

1829, 1829(b), 1831i, 1831m(g)(4), 1831o,

1831p–1, 1832(c), 1884(b), 1972, 3102,

3108(a), 3349, 3909, 4717, 5412(b)(2)(C),

5414(b)(3); 15 U.S.C

ignee.

PART 308—RULES OF PRACTICE AND

PROCEDURE

■3. The authority citation for part 308

continues to read as follows:

Authority: 5 U.S.C. 504, 554–557; 12

U.S.C. 93(b), 164, 505, 1464, 1467(d), 1467a,

1468, 1815(e), 1817, 1818, 1819, 1820, 1828,

1829, 1829(b), 1831i, 1831m(g)(4), 1831o,

1831p–1, 1832(c), 1884(b), 1972, 3102,

3108(a), 3349, 3909, 4717, 5412(b)(2)(C),

5414(b)(3); 15 U.S.C. 78(h) and (i), 78o(c)(4),

78o–4(c), 78o–5, 78q–1, 78s, 78u, 78u–2,

78u–3, 78w, 6801(b), 6805(b)(1); 28 U.S.C.

2461 note; 31 U.S.C. 330, 5321; 42 U.S.C.

4012a; Pub. L. 104–134, sec. 31001(s), 110

Stat. 1321; Pub. L. 109–351, 120 Stat. 1966;

Pub. L. 111–203, 124 Stat. 1376; Pub. L. 114–

74, sec. 701, 129 Stat. 584.

■4. Revise subpart M to read as follows:

Subpart M—Procedures Applicable to the

Request for and Conduct of a Hearing after

Denial of an Application Under Section 19

of the FDI Act

Sec.

308.156

Scope.

308.157

Denial of applications.

308.158

Hearings.

308.159–308.160

[Reserved]

Subpart M—Procedures Applicable to

the Request for and Conduct of a

Hearing after Denial of an Application

under Section 19 of the FDI Act

§ 308.156

Scope.

The rules and procedures set forth in

this subpart shall apply to an

application filed under section 19 of the

FDI Act, 12 U.S.C. 1829 (section 19),

and 12 CFR part 303, subpart L, by an

insured depository institution (IDI) or

an individual, which individual has

been convicted of any criminal offense

involving dishonesty, a breach of trust,

or money laundering, or who has agreed

to enter into a pretrial diversion or

similar program in connection with the

prosecution of such offense, to seek the

prior written consent of the FDIC for the

individual to become or continue as an

institution-affiliated party (IAP) with

respect to an IDI; to own or control

directly or indirectly an IDI; or to

participate directly or indirectly in any

manner in the conduct of the affairs of

an IDI; and shall apply only after such

application has been denied under par

ecution of such offense, to seek the

prior written consent of the FDIC for the

individual to become or continue as an

institution-affiliated party (IAP) with

respect to an IDI; to own or control

directly or indirectly an IDI; or to

participate directly or indirectly in any

manner in the conduct of the affairs of

an IDI; and shall apply only after such

application has been denied under part

12 CFR part 303, subpart L.

§ 308.157

Denial of applications.

If an application is denied under 12

CFR part 303, subpart L, then the

applicant may request a hearing under

this subpart. The applicant will have 60

days after the date of the denial to file

a written request with the Executive

Secretary. In the request, the applicant

shall state the relief desired, the grounds

supporting the request for relief, and

provide any supporting evidence that

the applicant believes is responsive to

the grounds for the denial.

§ 308.158

Hearings.

(a) Hearing dates. The Executive

Secretary shall order a hearing to be

commenced within 60 days after receipt

of a request for hearing on an

application filed under § 308.157. Upon

the request of the applicant or FDIC

enforcement counsel, the presiding

officer or the Executive Secretary may

order a later hearing date.

(b) Burden of proof. The burden of

going forward with a prima facie case

shall be upon the FDIC. The ultimate

burden of proof shall be upon the

person proposing to become or continue

as an IAP with respect to an IDI; to own

or control directly or indirectly an IDI;

or to participate directly or indirectly in

any manner in the conduct of the affairs

of an IDI.

order a later hearing date.

(b) Burden of proof. The burden of

going forward with a prima facie case

shall be upon the FDIC. The ultimate

burden of proof shall be upon the

person proposing to become or continue

as an IAP with respect to an IDI; to own

or control directly or indirectly an IDI;

or to participate directly or indirectly in

any manner in the conduct of the affairs

of an IDI.

(c) Hearing procedure. (1) The hearing

shall be held in Washington, DC, or at

another designated place, before a

presiding officer designated by the

Executive Secretary.

(2) The provisions of §§ 308.6 through

308.12, 308.16, and 308.21 of the

Uniform Rules (subpart A of this part)

and §§ 308.101, 308.102, and 308.104

through 308.106 the Local Rules

(subpart B of this part) shall apply to

hearings held under this subpart.

(3) The applicant may appear at the

hearing and shall have the right to

introduce relevant and material

documents and oral argument. Members

of the FDIC enforcement staff may

attend the hearing and participate as a

party.

(4) There shall be no discovery in

proceedings under this subpart.

(5) At the discretion of the presiding

officer, witnesses may be presented

within specified time limits, provided

that a list of witnesses is furnished to

the presiding officer and to all other

parties prior to the hearing. Witnesses

shall be sworn, unless otherwise

directed by the presiding officer. The

presiding officer may ask questions of

any witness. Each party shall have the

opportunity to cross-examine any

witness presented by an opposing party.

The transcript of the proceedings shall

be furnished, upon request and payment

of the cost thereof, to the applicant

afforded the hearing.

r to the hearing. Witnesses

shall be sworn, unless otherwise

directed by the presiding officer. The

presiding officer may ask questions of

any witness. Each party shall have the

opportunity to cross-examine any

witness presented by an opposing party.

The transcript of the proceedings shall

be furnished, upon request and payment

of the cost thereof, to the applicant

afforded the hearing.

(6) In the course of or in connection

with any hearing under this paragraph,

the presiding officer shall have the

power to administer oaths and

affirmations; to take or cause to be taken

depositions of unavailable witnesses;

and to issue, revoke, quash, or modify

subpoenas and subpoenas duces tecum.

Where the presentation of witnesses is

permitted, the presiding officer may

require the attendance of witnesses from

any state, territory, or other place

subject to the jurisdiction of the United

States at any location where the

proceeding is being conducted. Witness

fees shall be paid in accordance with

§ 308.14 of the Uniform Rules (subpart

A of this part).

(7) Upon the request of the applicant

afforded the hearing, or FDIC

enforcement staff, the record shall

remain open for five business days

following the hearing for the parties to

make additional submissions to the

record.

(8) The presiding officer shall make

recommendations to the Board of

Directors, where possible, within 20

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Federal Register / Vol. 85, No. 162 / Thursday, August 20, 2020 / Rules and Regulations

days after the last day for the parties to

submit additions to the record.

(9) The presiding officer shall forward

his or her recommendation to the

Executive Secretary who shall promptly

certify the entire record, including the

recommendation to the Board of

Directors or its designee. The Executive

Secretary’s certification shall close the

record.

August 20, 2020 / Rules and Regulations

days after the last day for the parties to

submit additions to the record.

(9) The presiding officer shall forward

his or her recommendation to the

Executive Secretary who shall promptly

certify the entire record, including the

recommendation to the Board of

Directors or its designee. The Executive

Secretary’s certification shall close the

record.

(d) Written submissions in lieu of

hearing. The applicant or the IDI may in

writing waive a hearing and elect to

have the matter determined on the basis

of written submissions.

(e) Failure to request or appear at

hearing. Failure to request a hearing

shall constitute a waiver of the

opportunity for a hearing. Failure to

appear at a hearing in person or through

an authorized representative shall

constitute a waiver of a hearing. If a

hearing is waived, the person shall

remain barred under section 19.

(f) Decision by Board of Directors or

its designee. Within 60 days following

the Executive Secretary’s certification of

the record to the Board of Directors or

its designee, the Board of Directors or its

designee shall notify the affected person

whether the person shall remain barred

under section 19. The notification shall

state the basis for any decision of the

Board of Directors or its designee that is

adverse to the applicant.

§ § 308.159–308.160

[Reserved]

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on July 24, 2020.

James P. Sheesley,

Acting Assistant Executive Secretary.

[FR Doc. 2020–16464 Filed 8–19–20; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA–2020–0294; Airspace

Docket No. 20–AGL–8]

RIN 2120–AA66

Amendment of Area Navigation (RNAV)

Route T–354; Northcentral United

States.

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final rule

ant Executive Secretary.

[FR Doc. 2020–16464 Filed 8–19–20; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA–2020–0294; Airspace

Docket No. 20–AGL–8]

RIN 2120–AA66

Amendment of Area Navigation (RNAV)

Route T–354; Northcentral United

States.

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final rule.

SUMMARY: This action modifies Area

Navigation (RNAV) route T–354 in the

northcentral United States. The

modified T-route expands the

availability of RNAV routing in support

of the FAA’s Next Generation Air

Transportation System (NextGen)

modernization efforts to transition the

National Airspace System (NAS) from a

ground-based to satellite-based

Performance Based Navigation (PBN)

system.

The RNAV route T–325 modifications

proposed in the notice of proposed

rulemaking (NPRM) require additional

coordination and flight inspection

activities. As such, the T–325

modifications are removed from this

rule.

DATES: Effective date 0901 UTC,

November 5, 2020. The Director of the

Federal Register approves this

incorporation by reference action under

Title 1 Code of Federal Regulations part

51, subject to the annual revision of

FAA Order 7400.11 and publication of

conforming amendments.

ADDRESSES: FAA Order 7400.11D,

Airspace Designations and Reporting

Points, and subsequent amendments can

be viewed online at https://

www.faa.gov/air_traffic/publications/.

For further information, you can contact

the Rules and Regulations Group,

Federal Aviation Administration, 800

Independence Avenue SW, Washington,

DC 20591; telephone: (202) 267–8783.

The Order is also available for

inspection at the National Archives and

Records Administration (NARA). For

information on the availability of FAA

Order 7400.11D at NARA, email:

fedreg.legal@nara.gov or go to https://

www.archives.gov/federal-register/cfr/

ibr-locations.html

roup,

Federal Aviation Administration, 800

Independence Avenue SW, Washington,

DC 20591; telephone: (202) 267–8783.

The Order is also available for

inspection at the National Archives and

Records Administration (NARA). For

information on the availability of FAA

Order 7400.11D at NARA, email:

fedreg.legal@nara.gov or go to https://

www.archives.gov/federal-register/cfr/

ibr-locations.html.

FOR FURTHER INFORMATION CONTACT:

Colby Abbott, Rules and Regulations

Group, Office of Policy, Federal

Aviation Administration, 800

Independence Avenue SW, Washington,

DC 20591; telephone: (202) 267–8783.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

The FAA’s authority to issue rules

regarding aviation safety is found in

Title 49 of the United States Code.

Subtitle I, Section 106 describes the

authority of the FAA Administrator.

Subtitle VII, Aviation Programs,

describes in more detail the scope of the

agency’s authority. This rulemaking is

promulgated under the authority

described in Subtitle VII, Part A,

Subpart I, Section 40103. Under that

section, the FAA is charged with

prescribing regulations to assign the use

of the airspace necessary to ensure the

safety of aircraft and the efficient use of

airspace. This regulation is within the

scope of that authority as it modifies the

route structure as necessary to preserve

the safe and efficient flow of air traffic

within the National Airspace System.

History

The FAA published a NPRM for

Docket No. FAA–2020–0294 in the

Federal Register (85 FR 22047; April 21,

2020), amending RNAV routes T–325

and T–354 to expand the availability of

RNAV routing in support of NextGen

efforts to transition the NAS from a

ground-based to satellite-based PBN

system. Interested parties were invited

to participate in this rulemaking effort

by submitting written comments on the

proposal. No comments were received.

Subsequent to the NPRM, the FAA

published a rule for Docket No

nding RNAV routes T–325

and T–354 to expand the availability of

RNAV routing in support of NextGen

efforts to transition the NAS from a

ground-based to satellite-based PBN

system. Interested parties were invited

to participate in this rulemaking effort

by submitting written comments on the

proposal. No comments were received.

Subsequent to the NPRM, the FAA

published a rule for Docket No. FAA–

2019–1105 in the Federal Register (85

FR 38785; June 29, 2020), amending

RNAV route T–354 by changing the

Siren, WI (RZN), route point listed as a

VOR/Distance Measuring Equipment

(‘‘VOR/DME’’) to ‘‘DME’’. That airway

amendment, effective September 10,

2020, is included in this rule.

Additionally, subsequent to the

NPRM, the FAA determined the RNAV

route T–325 modifications proposed in

the NPRM require additional

coordination and flight inspection

activities. As a result, the T–325

modifications are removed from this

rule and will be reworked in a separate

rulemaking action.

United States RNAV T-routes are

published in paragraph 6011 of FAA

Order 7400.11D, dated August 8, 2019,

and effective September 15, 2019, which

is incorporated by reference in 14 CFR

71.1. The RNAV route listed in this

document will be subsequently

published in the Order.

Availability and Summary of

Documents for Incorporation by

Reference

This document amends FAA Order

7400.11D, Airspace Designations and

Reporting Points, dated August 8, 2019,

and effective September 15, 2019. FAA

Order 7400.11D is publicly available as

listed in the ADDRESSES section of this

document. FAA Order 7400.11D lists

Class A, B, C, D, and E airspace areas,

air traffic service routes, and reporting

points.

The Rule

The FAA is amending Title 14 Code

of Federal Regulations (14 CFR) part 71

to modify RNAV route T–354. The

RNAV route change is described below.

T–354: T–354 extends between the

Park Rapids, MN, VOR/DME and the

Siren, WI, DME

the ADDRESSES section of this

document. FAA Order 7400.11D lists

Class A, B, C, D, and E airspace areas,

air traffic service routes, and reporting

points.

The Rule

The FAA is amending Title 14 Code

of Federal Regulations (14 CFR) part 71

to modify RNAV route T–354. The

RNAV route change is described below.

T–354: T–354 extends between the

Park Rapids, MN, VOR/DME and the

Siren, WI, DME. The Siren DME is

removed and replaced with the SSKYY,

WI, waypoint (WP) (located over the

Siren DME), and the route is extended

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