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Proposed Rule2023-23853

Fair Hiring in Banking Act

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Published

November 14, 2023

Issuing agencies

Federal Deposit Insurance Corporation

Abstract

The Federal Deposit Insurance Corporation (FDIC) proposes to revise its regulations to conform with the Fair Hiring in Banking Act (FHBA)--which was enacted on and immediately effective as of December 23, 2022. Among other provisions, the FHBA excluded or exempted categories of otherwise-covered offenses from the scope of statutory prohibitions on participation in banking. These categories pertain to certain older offenses, offenses committed by individuals 21 or younger, and "certain lesser offenses." The FHBA also clarified several definitions in section 19 and provided application-processing procedures. The FDIC considers most of the proposed revisions to its regulations to be required by the FHBA. Other proposed revisions reflect the FDIC's interpretation of statutory prohibitions in light of the FHBA.

Full Text

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<title>Federal Register, Volume 88 Issue 218 (Tuesday, November 14, 2023)</title>
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[Federal Register Volume 88, Number 218 (Tuesday, November 14, 2023)]
[Proposed Rules]
[Pages 77906-77917]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23853]

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Proposed Rules
Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 88 , No. 218 / Tuesday, November 14, 2023 /
Proposed Rules

[[Page 77906]]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303 and 308

RIN 3064-AF92

Fair Hiring in Banking Act

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) proposes to
revise its regulations to conform with the Fair Hiring in Banking Act
(FHBA)--which was enacted on and immediately effective as of December
23, 2022. Among other provisions, the FHBA excluded or exempted
categories of otherwise-covered offenses from the scope of statutory
prohibitions on participation in banking. These categories pertain to
certain older offenses, offenses committed by individuals 21 or
younger, and ``certain lesser offenses.'' The FHBA also clarified
several definitions in section 19 and provided application-processing
procedures. The FDIC considers most of the proposed revisions to its
regulations to be required by the FHBA. Other proposed revisions
reflect the FDIC's interpretation of statutory prohibitions in light of
the FHBA.

DATES: Comments must be received on or before January 16, 2024.

ADDRESSES: You may submit comments, identified by RIN 3064-AF92, by any
of the following methods:
<bullet> FDIC Website: <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>. Follow instructions for submitting
comments on the agency website.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#096a6664646c677d7a496f6d606a276e667f">[email&#160;protected]</a>. Include RIN 3064-AF92 on the
subject line of the message.
<bullet> Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments RIN 3064-AF92, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery to FDIC: Comments may be hand-delivered to
the guard station at the rear of the 550 17th Street NW building
(located on F Street NW) on business days between 7 a.m. and 5 p.m.
Please include your name, affiliation, address, email address, and
telephone number(s) in your comment. All statements received, including
attachments and other supporting materials, are part of the public
record and are subject to public disclosure.
<bullet> Public Inspection: Comments received, including any
personal information provided, may be posted without change to <a href="https://www.fdic.gov/resources/regulations/federal-register-publications/">https://www.fdic.gov/resources/regulations/federal-register-publications/</a>.
Commenters should submit only information that the commenter wishes to
make available publicly. The FDIC may review, redact, or refrain from
posting all or any portion of any comment that it may deem to be
inappropriate for publication, such as irrelevant or obscene material.
The FDIC may post only a single representative example of identical or
substantially identical comments, and in such cases will generally
identify the number of identical or substantially identical comments
represented by the posted example. All comments that have been
redacted, as well as those that have not been posted, that contain
comments on the merits of this document will be retained in the public
comment file and will be considered as required under all applicable
laws. All comments may be accessible under the Freedom of Information
Act.

FOR FURTHER INFORMATION CONTACT: Timothy Schuett, Senior Review
Examiner, 763-614-9473, <a href="/cdn-cgi/l/email-protection#90e4e3f3f8e5f5e4e4d0f6f4f9f3bef7ffe6">[email&#160;protected]</a>; Brian Zeller, Review
Examiner, 571-345-8170, <a href="/cdn-cgi/l/email-protection#5d3f27383131382f1d3b39343e733a322b">[email&#160;protected]</a>, Division of Risk Management
Supervision; or Graham Rehrig, Counsel, 703-314-3401, <a href="/cdn-cgi/l/email-protection#aacdd8cfc2d8c3cdeacccec3c984cdc5dc">[email&#160;protected]</a>,
Legal Division.

SUPPLEMENTARY INFORMATION:

I. Background

Section 19 of the Federal Deposit Insurance Act (section 19) \1\
prohibits, without the prior written consent of the FDIC (the FDIC
refers to applications for such consent as ``consent applications''),
the participation in banking by any person who has been convicted of a
crime involving 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 (collectively,
covered offenses). 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 separate 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.
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\1\ 12 U.S.C. 1829.
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From 1998 until 2020, the FDIC had a Statement of Policy that was
issued related to section 19, occasionally revised, and published in
the Federal Register.\2\ The purpose of the Statement of Policy, as
amended through the years, was ``to provide the public with guidance
relating to section 19 and the FDIC's application thereof.'' \3\ In
2020, following notice and comment, the FDIC revised and codified the
Statement of Policy into the FDIC's Filing Procedures under 12 CFR part
303, subpart L, and Rules of Practice and Procedure under part 308,
subpart M (2020 Final Rule).\4\
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\2\ See 63 FR 66177 (Dec. 1, 1998); 72 FR 73823 (Dec. 8, 2007)
with correction issued at 73 FR 5270 (Oct. 13, 2008); 76 FR 28031
(May 13, 2011); 77 FR 74847 (Dec. 18, 2012); 83 FR 38143 (Aug. 3,
2018).
\3\ See 84 FR 68353.
\4\ See 85 FR 51312 (Aug. 20, 2020).
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On December 23, 2022, the President signed into law the Fair Hiring
in Banking Act FHBA,\5\ which significantly revised section 19 and was
effective immediately. The FHBA created several categories of
exceptions or exemptions to the prohibition on participating in
banking, including the following:
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\5\ The FHBA appears at section 5705 of the James M. Inhofe
National Defense Authorization Act for Fiscal Year 2023, Public Law
117-263, 136 Stat. 2395, 3411.
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<bullet> Certain older offenses: (1) if it has been 7 years or more
since the offense occurred; (2) if the individual was incarcerated with
respect to the offense and it has been 5 years or more since the
individual was released from incarceration; or (3) for individuals who
committed an offense when they were 21 years of age or younger, if it
has been

[[Page 77907]]

more than 30 months since the sentencing occurred.\6\
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\6\ These exceptions do not apply to the offenses described
under 12 U.S.C. 1829(a)(2).
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<bullet> Offenses for which an order of expungement, sealing, or
dismissal has been issued in regard to the conviction in connection
with such offense and it is intended by the language in the order
itself, or in the legislative provisions under which the order was
issued, that the conviction shall be destroyed or sealed from the
individual's State, Tribal, or Federal record even if exceptions allow
the record to be considered for certain character and fitness
evaluation purposes.
<bullet> ``Designated lesser offenses,'' including the use of fake
identification, shoplifting, trespass, fare evasion, driving with an
expired license or tag (and such other low-risk offenses as the FDIC
may designate), if 1 year or more has passed since the applicable
conviction or program entry.
<bullet> Misdemeanor criminal offenses involving dishonesty, if the
offense was committed more than one year before the date on which an
individual files a consent application,\7\ excluding any period of
incarceration.
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\7\ Under the FHBA, a ``consent application'' ``means an
application filed with [the FDIC] by an individual (or by an insured
depository institution or depository institution holding company on
behalf of an individual) seeking the written consent of the [FDIC]
under [12 U.S.C. 1829(a)(1)].'' 12 U.S.C. 1829(g)(1).
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<bullet> A criminal offense involving dishonesty that also
``involv[es] the possession of controlled substances.''
The FHBA clarifies several terms in section 19, including
``criminal offense involving dishonesty'' and ``pretrial diversion or
similar program.'' It also provides conditions regarding de minimis
offenses, to the extent the FDIC provides de minimis exemptions by
rule.
The FHBA codifies procedures for consent applications filed with
the FDIC. It requires the FDIC to make all forms and instructions
related to consent applications available to the public, including on
the FDIC's website. It requires the FDIC to primarily rely on the
criminal history record of the Federal Bureau of Investigation when
evaluating consent applications and to provide such records to the
applicant to review for accuracy. Further, it requires the FDIC to
assess evidence of an individual's rehabilitation including: the
applicant's age at the time of the conviction or program entry; the
time that has elapsed since conviction or program entry; and the
relationship of an individual's offense to the responsibilities of the
applicable position. Other information, including an individual's
employment history, letters of recommendation, certificates documenting
participation in substance abuse programs, successful participation in
job preparation and educational programs, other relevant evidence, and
any additional information the FDIC determines necessary for safety and
soundness shall also be considered.

II. Discussion of Proposed Amendments

The proposed amendments to the FDIC's section 19 regulations are
primarily intended to align the regulations with the FHBA's provisions.
The proposed amendments address, among other topics, 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. Furthermore, in developing these proposed amendments,
the FDIC has consulted and coordinated with the National Credit Union
Administration, the Board of Governors of the Federal Reserve System
(FRB), and the Office of the Comptroller of the Currency ``to promote
consistent implementation [of the FHBA] where appropriate.'' \8\
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\8\ See 12 U.S.C. 1829(f)(9) (``In carrying out this section,
the [FDIC] shall consult and coordinate with the National Credit
Union Administration as needed to promote consistent implementation
where appropriate'').
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Significant proposed revisions \9\ include the following:
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\9\ The proposed rule would also make a number of non-
substantive, technical edits to the section 19 regulations that are
not discussed in this section.
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A. Revised Provisions of 12 CFR Part 303, Subpart L

1. Section 303.220 What is section 19 of the Federal Deposit Insurance
Act?
The FDIC proposes revising paragraph (b) of this section to clarify
that IDIs must make a reasonable, documented inquiry to verify an
applicant's history to ensure that a person who has a covered offense
on the person's record is not hired or permitted to participate in its
affairs without the written consent of the FDIC.
2. Section 303.221 Who is covered by section 19?
The FDIC proposes to revise paragraph (d) of this section to more
closely align its restrictions with the analogous FRB regulations under
12 CFR 225.41 and 238.31 and the FDIC's regulations under 12 CFR part
303, subpart E, concerning Change in Bank Control applications. A
person will be deemed to exercise ``control'' if that person: (1) has
the ability to direct the management or policies of an IDI; (2) has the
power to vote 25 percent or more of the voting shares of an IDI; or (3)
has the power to vote 10 percent of the voting shares of an IDI if: (a)
no other person owns, controls, or has the power to vote more shares;
or (b) the institution has registered securities under section 12 of
the Securities Exchange Act of 1934.\10\ Under the same standards, a
person will be deemed to ``own'' an IDI if that person owns: (1) 25
percent or more of the institution's voting stock; or (2) 10 percent of
the voting shares if: (a) no other person owns more; or (b) the
institution has registered securities under section 12 of the
Securities Exchange Act of 1934. Paragraph (d) retains language
concerning individuals acting in concert with others so as to have such
ownership or control.
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\10\ 15 U.S.C. 78l.
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3. Section 303.222 Which offenses qualify as ``Covered Offenses'' under
section 19?
The proposed revisions to paragraph (a) of this section would
reflect the new statutory definition of ``criminal offense involving
dishonesty.'' \11\ The FHBA excludes from the scope of such offenses
``an offense involving the possession of controlled substances.'' \12\
The FDIC interprets this phrase concerning controlled substances to
exclude, at a minimum, criminal offenses involving the simple
possession of controlled substances and possession with intent to
distribute a controlled substance. This exclusion may also apply to
other drug-related offenses depending on the statutory elements of the
offenses or from court determinations that the statutory provisions of
the offenses do not involve dishonesty, breach of trust, or money
laundering. Potential applicants may contact their appropriate FDIC
Regional Office if they have questions about whether their offenses are
covered under section 19.
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\11\ See 12 U.S.C. 1829(g)(2).
\12\ 12 U.S.C. 1829(g)(2)(C)(ii).
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This revised regulatory language would mark a shift from the FDIC's
current section 19 regulations, which require an application for all
convictions and pretrial diversions concerning the illegal manufacture,
sale, distribution of, or trafficking in controlled substances. The
FDIC believes that this proposed revision would be consistent with the
text and purposes of the FHBA, would align the FDIC's interpretation of
section 19 as to offenses involving controlled substances

[[Page 77908]]

more closely with other Federal banking regulators, and continue to
recognize that a drug-related offense could potentially involve
dishonesty, breach of trust, or money laundering. The FDIC also notes
that this proposed revision to its section 19 regulations would not
affect the FDIC's ability to consider drug-related offenses, as they
pertain to the suitability of an individual, under other statutory
provisions, including the Change in Bank Control Act and section 32 of
the FDI Act.
The FHBA also states that the term ``criminal offense involving
dishonesty'' does not include ``a misdemeanor criminal offense
committed more than one year before the date on which an individual
files a consent application, excluding any period of incarceration.''
\13\ The FDIC interprets the term ``offense committed'' to mean the
``last date of the underlying misconduct,'' based on the plain text of
the statute. In instances with multiple offenses, ``offense committed''
means the last date of any of the underlying offenses.
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\13\ 12 U.S.C. 1829(g)(2)(C)(i).
---------------------------------------------------------------------------

Revised paragraph (c) would include new language reflecting the
statute's exception of certain older offenses from the scope of section
19.\14\ Among other exceptions, the FHBA states that section 19's
restrictions will not apply to an offense if ``it has been 7 years or
more since the offense occurred.'' \15\ The FDIC considers the phrases
``offense committed''--noted above--and ``offense occurred'' to be
substantially similar. Accordingly, the FDIC interprets the term
``offense occurred'' to mean the ``last date of the underlying
misconduct.'' In instances with multiple offenses, ``offense occurred''
means the last date of any of the underlying offenses. Revised
paragraph (c) contains another FHBA exception: section 19's
restrictions would not apply to an offense if ``the individual was
incarcerated with respect to the offense and it has been 5 years or
more since the individual was released from incarceration.'' \16\ While
the language of the statute is clear, the FDIC notes that there could
be situations in which an individual who was incarcerated with respect
to an offense would be permitted to work at a bank before a similarly
situated individual who was not incarcerated in connection with an
offense. Revised paragraph (c) also tracks the FHBA's language
concerning offenses committed by individuals 21 years of age or
younger. The FHBA states that, for individuals who committed an offense
when the individual was 21 years of age or younger, section 19 shall
not apply to the offense if it has been more than 30 months since the
sentencing occurred.\17\ The FDIC interprets ``sentencing occurred'' to
mean the date on which a court imposed the sentence, not the date on
which all conditions of sentencing were completed. Moreover, revised
paragraph (c) notes that its exclusions--which are derived from the
FHBA--do not apply to the enumerated offenses described under 12 U.S.C.
1829(a)(2).\18\
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\14\ See 12 U.S.C. 1829(c)(1).
\15\ See 12 U.S.C. 1829(c)(1)(A)(i).
\16\ See 12 U.S.C. 1829(c)(1)(A)(ii).
\17\ 12 U.S.C. 1829(c)(1)(B).
\18\ See 12 U.S.C. 1829(c)(1)(C).
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Revised paragraph (d) excludes ``designated lesser offenses'' (for
example, using fake identification), as specified in 12 U.S.C.
1829(c)(3)(D), if one year or more has passed since the applicable
conviction or program entry.
Revised paragraph (e) adds language to codify the FDIC's long-held
position that individuals who are convicted of or enter into a pretrial
diversion program for a criminal offense involving dishonesty, breach
of trust, or money laundering in foreign jurisdictions are subject to
section 19, unless the offense is otherwise excluded by 12 CFR part
303, subpart L. For example, if an IDI has operations outside the
United States, the IDI could conduct a reasonable, documented inquiry
to verify an applicant's history, in accordance with 12 CFR 303.220, by
inquiring about potential covered offenses that may have occurred in
that foreign country (or countries) in which the IDI conducts
operations, as well as in the United States. As another example of such
an inquiry, if an IDI plans to hire someone in the United States who is
from a foreign country, the IDI could inquire about potential covered
offenses that may have occurred in the United States and in that
foreign country.
4. Section 303.223 What constitutes a conviction under section 19?
Paragraph (c) of this section has been revised to reflect statutory
language related to the treatment of orders of expungement, sealing, or
dismissal of criminal records.\19\ The FHBA provides a two-pronged test
to determine whether a covered offense should be considered expunged,
dismissed, or sealed and therefore excluded from the scope of section
19. First, there must be an ``order of expungement, sealing, or
dismissal that has been issued in regard to the conviction in
connection with such offense''; second, it must be ``intended by the
language in the order itself, or in the legislative provisions under
which the order was issued, that the conviction shall be destroyed or
sealed from the individual's State, Tribal, or Federal record, even if
exceptions allow the record to be considered for certain character and
fitness evaluation purposes.'' \20\ The statute does not address
expungements, sealings, or dismissals by operation of law, and the FDIC
has sought to harmonize its current regulations concerning expunged and
sealed records with the statutory language to provide a more
comprehensive framework as to such records. The FDIC has also added
language to the second (intent) prong of the expungement framework to
encompass the language in the expungement order itself, the legislative
provisions under which the order was issued, and other legislative
provisions. This proposed revision also seeks to harmonize the FDIC's
current regulations concerning expungements with the FHBA's provisions.
The FDIC believes that all of the additional language is consistent
with the purposes of the statute.
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\19\ See 12 U.S.C. 1829(c)(2).
\20\ 12 U.S.C. 1829(c)(2).
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Revised paragraph (d) clarifies that it encompasses the terms
``youthful offender'' and ``juvenile delinquent'' and similar terms,
since a court does not have to specifically use these terms in an
adjudication in order for paragraph (d)'s provisions to apply.
5. Section 303.224 What constitutes a pretrial diversion or similar
program (program entry) under section 19?
This section has been revised to reflect the statutory definition
of ``pretrial diversion or similar program.'' \21\
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\21\ See 12 U.S.C. 1829(g)(3).
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6. Section 303.225 What are the types of applications that can be
filed?
This section has been revised to reflect the updated statutory
filing procedures. The statute removes the FDIC's former policy that an
institution sponsor a consent application or that an individual seek a
waiver of the institution filing requirement. Moreover, the statute
enables a depository institution holding company to file an application
on behalf of an individual (previously, only IDIs could file such
sponsored applications).\22\ In order to avoid duplication of
applications filed with the FRB and the FDIC, revised paragraph (a)
states that the FDIC will accept applications from: an individual; an
IDI applying on behalf of an

[[Page 77909]]

individual; a depository institution holding company applying on behalf
of an individual with respect to a depository institution subsidiary of
the holding company; and a depository institution holding company
applying on behalf of an individual who will work at the holding
company but also participate in the affairs of the IDI or who would be
in a position to influence or control the management or affairs of the
IDI, in accordance with 12 CFR 303.221(a).
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\22\ See 12 U.S.C. 1829(f)(1).
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Revised paragraph (b), consistent with the FHBA, states that an
individual or an institution may file applications at separate times.
Under either approach, the application(s) must be filed with the
appropriate FDIC Regional Office.\23\
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\23\ See 12 U.S.C. 1829(f)(1).
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7. Section 303.226 When may an application be filed?
This revised section notes that, before an application may be
filed, ``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 proposes to include this revised language to accord with
several of the FHBA's exclusions from section 19 that are not tied to
the completion of sentencing requirements.
Furthermore, the FHBA requires the FDIC to ``make all forms and
instructions related to consent applications available to the public,
including on the website of the Corporation.'' \24\ These forms and
instructions ``shall provide a sample cover letter and a comprehensive
list of items that may accompany the application, including clear
guidance on evidence that may support a finding of rehabilitation.''
\25\ While the FDIC has not explicitly mentioned these requirements in
its regulations, the agency will comply with them.
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\24\ 12 U.S.C. 1829(f)(5)(A).
\25\ 12 U.S.C. 1829(f)(5)(B).
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8. Section 303.227 De minimis Offenses
The FDIC proposes to retitle this section to avoid confusion
between ``designated lesser offenses'' and ``de minimis offenses.''
This section's current title is, ``When is an application not required
for a covered offense or program entry (De minimis offenses)?'' The
FHBA includes ``designated lesser offenses,'' which offenses are
excluded from the scope of section 19 (that is, they are not considered
de minimis offenses--which offenses are considered covered offenses for
which no application is required because the application is deemed
automatically granted). The FDIC believes that the current title would
cause confusion for a reader and therefore proposes retitling this
section.
The FHBA removed the use of fake identification from the scope of
section 19, and revised paragraphs (a)(1) and (b)(4) reflect this
exclusion.\26\ Revised paragraph (a)(2) would reflect the FHBA's
confinement criteria as to the FDIC's determination of de minimis
offenses.\27\
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\26\ See 12 U.S.C. 1829(c)(3)(D).
\27\ See 12 U.S.C. 1829(c)(3)(B).
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The FDIC proposes to revise the de minimis requirement related to
the aggregate total face value of all ``bad'' or insufficient funds
checks in paragraph (b)(2)(i) from $1,000 to $2,000 to conform with the
statute.\28\
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\28\ See 12 U.S.C. 1829(c)(3)(C).
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9. Section 303.228 How To File an Application
This revised section would eliminate the institution filing
requirement and waiver process and indicate that an ``institution''--an
IDI or a depository institution holding company--could file an
application on behalf of an individual, rather than just an IDI. Both
of these proposed revisions are due to the updated statutory
language.\29\ This revised section would also clarify that the
appropriate FDIC Regional Office for an institution-sponsored
application would be the office covering the state where the
institution's home office is located and that the appropriate FDIC
Regional Office for an individual application would be the office
covering the state where the person resides.
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\29\ See 12 U.S.C. 1829(f)(1).
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10. Section 303.229 How an Application Is Evaluated
Revised paragraph (a) would reflect new statutory requirements
related to the FDIC's review process, including the requirement that
the FDIC primarily rely on the criminal history record of the Federal
Bureau of Investigation in the FDIC's review and provide such record to
the applicant to review for accuracy.\30\ The FDIC interprets the term
``criminal history record'' to mean ``identity history summary
checks,'' which are commonly known as ``rap sheets.'' Under revised
paragraph (a)--and in accordance with the FHBA--the FDIC, in reviewing
a consent application, would provide a copy of the rap sheet to an
applicant to review for accuracy.\31\
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\30\ See 12 U.S.C. 1829(f)(6)(A)(i).
\31\ See 12 U.S.C. 1829(f)(6)(A)(ii).
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Revised paragraph (b) would state that the FDIC will not require an
applicant to provide certified copies of criminal history records
unless the FDIC determines that there is a clear and compelling
justification to require additional information to verify the accuracy
of the criminal history record of the Federal Bureau of Investigation
(that is, the rap sheet).\32\
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\32\ 12 U.S.C. 1829(f)(6)(B).
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Revised paragraph (d) would clarify how the FDIC will evaluate
evidence of rehabilitation and other evidence, as required by the
FHBA.\33\
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\33\ 12 U.S.C. 1829(f)(7). While the statute uses the terms
``rehabilitation'' and ``mitigating'' as separate categories of
evidence, the terms appear to be substantially similar, in the
context of section 19 applications, and the use of both terms in
these regulations may create confusion. Therefore, the proposed rule
uses the term rehabilitation not mitigating.
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Revised paragraph (g) would eliminate references to the former
application-waiver requirement.
Finally, revised paragraph (h) would incorporate statutory language
explaining when a new institution-sponsored application would be
necessary due to changes in the scope of an applicant's employment.\34\
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\34\ See 12 U.S.C. 1829(f)(8).
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11. Section 303.231 Waiting Time for a Subsequent Application if An
Application Is Denied
This section, as currently written and among other provisions,
requires a one-year waiting period to file a consent application,
following the issuance of a decision denying such an application. The
proposed rule would retain the existing regulatory text as paragraph
(a) and create a new paragraph (b)--which would note that an
institution-sponsored application is not subject to the one-year
waiting period if the application (1) follows the denial of an
individual application, or (2) follows the denial of an institution-
sponsored application and the subsequent application is sponsored by a
different institution or is for a different position.

B. Revised Provisions of 12 CFR Part 308, Subpart M

The proposed rule would make several technical amendments to
Sec. Sec. 308.156 and 308.158 to encompass applications that are
sponsored by depository institution holding companies, clarify two
sentences concerning hearing procedures, and use more consistent
terminology.

[[Page 77910]]

III. Expected Effects

As previously discussed, the proposed rule would align the FDIC's
regulations with the FHBA's provisions, make additional changes to
further clarify the FDIC's regulations related to section 19, more
closely align the FDIC's section 19 regulations with those of other
Federal financial regulators, and make a number of non-substantive,
technical edits. As of the quarter ending June 30, 2023, there were
4,654 FDIC-insured depository institutions, all of which are covered by
the rule and therefore could be affected.\35\ Additionally, the rule
will apply to persons covered by the provisions of section 19,
including those who are or wish to become employees, officers,
directors, or controlling shareholders of an IDI or who otherwise are
or wish to become an institution-affiliated party (IAP) of an IDI.
---------------------------------------------------------------------------

\35\ FDIC Call Report data, March 31, 2023.
---------------------------------------------------------------------------

To estimate the number of institutions and individuals affected by
the rule, the FDIC counted the number of section 19 applications it has
received between 2020 and 2022. Over this period, the FDIC received 27
bank-sponsored section 19 applications, an average of 9 per year.
Additionally, the FDIC received 202 individual section 19 applications
during the same period, an average of approximately 67 per year.\36\
Therefore, the FDIC estimates that the proposed rule could affect at
least 9 FDIC-insured depository institutions and 67 individuals per
year. Assuming that each application involves a different institution,
approximately 2 percent of insured institutions, or 76, could be
affected per year on average.\37\
---------------------------------------------------------------------------

\36\ FDIC Application Tracking System.
\37\ (76/4,654) * 100 = 1.6 percent.
---------------------------------------------------------------------------

As previously described, the proposed rule would align the FDIC's
regulations with the FHBA's provisions. In particular, the FHBA created
several categories of exceptions or exemptions to the prohibition on
participating in banking. The proposed rule would incorporate these
categories of exemptions and exceptions. The FDIC believes that the
additional categories for exceptions or exemptions to the prohibition
on participating in banking established by the FHBA could benefit
certain individuals and IDIs by reducing the number of applications
they would otherwise be required to file under section 19.
Additionally, the categories of exceptions or exemptions to the
prohibition on participating in banking established by the FHBA could
benefit IDIs by marginally expanding the supply of labor available.
However, these changes were created by the FHBA and were effective
immediately upon passage, and the proposed rule aligns the FDIC's
regulations with these elements of the FHBA; therefore, the associated
changes in the proposed rule will have no direct effect on individuals
or IDIs.
The proposed rule would amend the FDIC's existing section 19
application-procedure regulations to incorporate the FHBA's provisions.
The FDIC's current section 19 regulations contain references to
existing application procedures that are similar in substance to those
established by FHBA. However, the FHBA, among other requirements,
compels the FDIC to primarily rely on the criminal history record of
the Federal Bureau of Investigation when reviewing consent
applications. It is the current practice of the FDIC to consider all
relevant information when evaluating a section 19 application. However,
the establishment of a common source of criminal history, together with
only requiring certified copies of criminal history records if there
exists clear and compelling justification for doing so, could benefit
certain individuals and IDIs by marginally reducing the volume of
information they need to supply to the FDIC. The FDIC believes that,
while these proposed changes to the application procedures will
directly affect certain individuals and institutions that file section
19 applications, they may not have a substantial effect on potential
applicants. Finally, these changes were created by the FHBA and were
effective immediately upon passage, and the proposed rule aligns the
FDIC's regulations with these elements of the FHBA; therefore, the
associated changes in the proposed rule will have no direct effect on
individuals or IDIs.
Finally, in seeking to align its section 19 regulations with the
provisions of the FHBA, the FDIC used its discretion to marginally
increase the scope of certain terms so as to better reflect the
purposes of the FHBA. In particular, the FDIC has provided broader
language as to the scope of expunged, sealed, or dismissed offenses.
This aspect of the proposed rule could potentially benefit persons
covered by the provisions of section 19, including individuals who are
or wish to become employees, officers, directors, or controlling
shareholders of an IDI, or who otherwise are or wish to become an IAP
of an IDI. However, given that most of the proposed amendments are
focused on aligning the FDIC's regulations with the FHBA, the marginal
effect of this aspect of the proposed rule is likely to be small.
The FDIC invites comments on all aspects of this analysis. In
particular, would the proposed rule have any costs or benefits that the
FDIC has not identified?

IV. Alternatives

As discussed above, almost all of the proposed substantive changes
stem from the FHBA's revisions to section 19. The FDIC does not have
discretion in considering alternatives to those statutory revisions.
The FDIC has, however, proposed several clarifications and
interpretations to its section 19 regulations. For example, the FDIC
has provided broader language as to the scope of expunged, sealed, or
dismissed offenses. The FDIC considered whether to simply provide the
statutory definition for such offenses. The FDIC chose to propose the
inclusion of more expansive language, in the interest of harmonizing
the FDIC's existing regulations with the revisions to section 19, and
under the belief that this language would be consistent with the
purposes of the FHBA. The FDIC invites comments on its consideration of
alternatives. In particular, are there other alternatives that the FDIC
should consider?

V. Request for Comments

1. The FDIC seeks comments on all aspects of its approach to
section 19 and more specifically on the questions that follow.
2. Offense date. As revised, section 19 provides for an exception
for an offense if ``it has been 7 years or more since the offense
occurred.'' \38\ There is a similar provision that removes from the
definition of ``criminal offense involving dishonesty'' ``a misdemeanor
criminal offense committed more than one year before the date on which
an individual files a consent application, excluding any period of
incarceration[.]'' \39\ Historically, the FDIC's position has been that
actions do not amount to a covered ``offense,'' for section 19
purposes, until there has been either a conviction via a guilty plea,
finding of guilt, or an entry into a pretrial-diversion program. This
is because culpability and responsibility for the actions do not attach
until one of those events occurs.\40\ However, for purposes

[[Page 77911]]

of evaluating whether the seven-year or one-year exception applies, the
FDIC must evaluate if it has been seven years or more since the
``offense occurred'' or whether the ``offense [was] committed more than
one year before the date on which an individual files a consent
application, excluding any period of incarceration.'' The FDIC proposes
to interpret the phrases ``offense occurred'' and ``offenses
committed'' as the ``last date of the underlying misconduct'' given the
text of the statute. (In instances with multiple offenses, ``offense
occurred'' or ``offense committed'' would mean the last date of any of
the underlying offenses.) However, the FDIC acknowledges that there may
be other, supportable interpretations of this phrase. For example, the
FDIC is aware of legislative history indicating that the timeframes
established by the FHBA were chosen because of their relation to an
individual's likelihood of rehabilitation and that an individual's
rehabilitation likely only begins with conviction or program entry,
rather than the date of their misconduct. As such, the FDIC seeks
public comment on the following topic: Is the FDIC's interpretation of
the phrases ``offense occurred'' and ``offense committed'' as the
``last date of underlying misconduct'' appropriate or are there other
interpretations the FDIC should consider? What support do commenters
have for other interpretations given the language of the statute?
---------------------------------------------------------------------------

\38\ 12 U.S.C. 1829(c)(1).
\39\ 12 U.S.C. 1829(g)(2)(C)(i).
\40\ See 12 CFR 303.223(a) (2020). (``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 Sec. 303.224.''). The FDIC's current section 19 regulations only
focus on underlying misconduct in the context of de minimis offenses
for individuals who were 21 years of age of younger when the
``actions that resulted in [the] conviction[ ] or program entr[y]
all occurred.'' See 12 CFR 303.227(b)(1).
---------------------------------------------------------------------------

3. ``Sentencing occurred.'' The FHBA exempts offenses committed by
individuals 21 years of age or younger if it has been more than 30
months since the sentencing occurred.\41\ However, the statute does not
define the phrase ``sentencing occurred.'' The FDIC proposes to
interpret ``sentencing occurred'' to mean the date on which a court
imposed the sentence, not the date on which all conditions of
sentencing were completed. The FDIC seeks public comment on the
following topic: Is the FDIC's proposed interpretation of the phrase
``sentencing occurred'' appropriate?
---------------------------------------------------------------------------

\41\ 12 U.S.C. 1829(c)(1)(B).
---------------------------------------------------------------------------

4. Foreign convictions and pretrial diversions. Section 19 applies
to ``any person who has been convicted of any criminal offense
involving dishonesty or a breach of trust or money laundering, or has
agreed to enter into a pretrial diversion or similar program in
connection with a prosecution for such offense.'' \42\ The phrase
``criminal offense involving dishonesty'' is defined in the statute but
is silent as to whether it includes convictions and pretrial diversions
for criminal offenses prosecuted by foreign authorities (foreign
convictions).\43\ The statute does not define ``offense involving . . .
breach of trust or money laundering.'' The FDIC's position has been
that foreign convictions and pretrial diversions are included within
the scope of section 19. There are strong public policy rationales for
prohibiting persons who have been convicted of certain foreign criminal
offenses (or entered into a pre-trial diversion program in connection
with such an offense) from becoming or continuing as an IAP or owning,
controlling, or otherwise participating in the affairs of an insured
depository institution. However, the FDIC acknowledges that there may
be caselaw, statutory construction, and other arguments that support a
reading of section 19 that would exclude foreign convictions and
pretrial diversions from the scope of section 19. As such, the FDIC
seeks public comment on the following topic: Does section 19 encompass
foreign convictions and pretrial diversions? What support do commenters
have for their position?
---------------------------------------------------------------------------

\42\ 12 U.S.C. 1829(a)(1).
\43\ See 12 U.S.C. 1829(g)(2).
---------------------------------------------------------------------------

5. Expungements, sealings, and dismissals. The FHBA established a
new statutory exemption for expunged, sealed, and dismissed convictions
(collectively, ``expungements'').\44\ The FDIC's current regulations
contain more expansive language concerning expungements than the
statutory text. Notably, the FDIC's expungement provisions encompass
all convictions that had been expunged--whether by court order or
otherwise by operation of law. The statutory language does not mention
expungements ``by operation of law''--as opposed to through a court
order. The proposed rule incorporates the new statutory language but
also maintains the FDIC's broad interpretation of ``expungement'' to
encompass covered offenses that have been expunged by operation of law.
The FDIC seeks public comment on the following topic: Given the new
statutory exemption for expunged offenses, is the FDIC's more expansive
proposed interpretation of expungement--which term includes records
that have been expunged by application of law--appropriate?
---------------------------------------------------------------------------

\44\ See 12 U.S.C. 1829(c)(2).
---------------------------------------------------------------------------

6. Offenses involving controlled substances. The FHBA states that
``offenses involving the possession of controlled substances'' are not
included within the definition of ``criminal offense involving
dishonesty'' and, therefore, are not subject to section 19's
prohibition.\45\ The proposed rule includes this definitional exclusion
and notes that the FDIC interprets the phrase ``offenses involving the
possession of controlled substances'' to include, at a minimum, the
offenses of simple possession of controlled substances and possession
with intent to distribute controlled substances. This interpretation
would mark an expansion from the FDIC's current section 19 regulations,
which only provide an exclusion for the simple possession of controlled
substances. At the same time, this interpretation would track the
statutory language of ``offenses involving the possession of controlled
substances'' by encompassing the offense of possession with intent to
distribute controlled substances. The FDIC seeks public comment on the
following topic: Is the FDIC's interpretation of ``offense[s] involving
the possession of controlled substances'' as applying, at a minimum, to
simple possession and possession with intent to distribute appropriate?
---------------------------------------------------------------------------

\45\ 12 U.S.C. 1829(g)(2)(C)(ii).
---------------------------------------------------------------------------

7. De minimis offenses. The FHBA states that the FDIC may exempt by
rule certain de minimis offenses from section 19's prohibition. The
FDIC considers de minimis offenses to be covered offenses for which an
application is not required because the FDIC deems the application
automatically granted. The FDIC has previously promulgated rules that
specified de minimis offenses under section 19.\46\ However, given this
new statutory language, the FDIC is reevaluating its current approach
to de minimis offenses. Accordingly, the FDIC seeks public comment on
the following topic: Is the FDIC's current approach to de minimis
offenses appropriate? Are there additional offenses that the FDIC
should consider de minimis under section 19? Please provide support for
such a designation.
---------------------------------------------------------------------------

\46\ See 12 CFR 303.227.
---------------------------------------------------------------------------

8. Written comments must be received by the FDIC no later than
January 16, 2024.

VI. Regulatory Analysis and Procedure

A. The Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act
(PRA),\47\ the FDIC may not conduct or sponsor, and the respondent is
not required to respond to, an information collection unless it
displays a currently

[[Page 77912]]

valid Office of Management and Budget (OMB) control number.
---------------------------------------------------------------------------

\47\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

The FDIC is revising its section 19 application form to conform
with the changes to section 19 under the FHBA. These changes will amend
the FDIC's existing information collection associated with this
proposed rule, entitled ``Application Pursuant to Section 19 of the
Federal Deposit Insurance Act'' (3064-0018). For this reason, the
information-collection requirements contained in this proposed rule
will be submitted by the FDIC to OMB for review and approval under
section 3507(d) of the PRA (44 U.S.C. 3507(d)) and Sec. 1320.11 of the
OMB's implementing regulations (5 CFR part 1320). Based on available
data, the number of respondents and the estimated annual burden
associated with the information collection will decrease. Comments are
invited on:
(a) Whether the collection of information is necessary for the
proper performance of the FDIC's functions, including whether the
information has practical utility;
(b) The accuracy of the estimate of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on the
collection of information should be sent to the address listed in the
ADDRESSES section of this document. A copy of the comments may also be
submitted to the OMB desk officer: By mail to U.S. Office of Management
and Budget, 725 17th Street NW, #10235, Washington, DC 20503, or by
facsimile to 202-395-6974; or email to <a href="/cdn-cgi/l/email-protection#234c4a51427c5056414e4a50504a4c4d634c4e410d464c530d444c55">[email&#160;protected]</a>,
Attention, Federal Banking Agency Desk Officer.
Information Collection
Title: ``Application Pursuant to Section 19 of the Federal Deposit
Insurance Act''.
OMB Number: 3064-0018.
Affected Public: Insured depository institutions and individuals.

Summary of Estimated Annual Burdens
[OMB No. 3064-0018]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of
IC Description Type of burden Frequency of response Number of responses/ Hours per Annual burden
(obligation to respond) respondents respondent response (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Application Pursuant to Section 19 Reporting (Required to On occasion.............. 76 1 16 1,216
of the Federal Deposit Insurance obtain or retain
Act. benefits).
---------------------------------------------------------------
Total Annual Burden Hours: ....................... ......................... .............. .............. .............. 1,216
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FDIC.

B. 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 the proposed rule on small entities.\48\
However, an initial regulatory flexibility analysis is not required if
the agency certifies that the proposed rule will not, if promulgated,
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 $850 million.\49\ Generally, the FDIC considers a
significant economic impact to be a quantified effect in excess of 5
percent of total annual salaries and benefits or 2.5 percent of total
noninterest expenses. The FDIC believes that effects in excess of one
or more of these thresholds typically represent significant economic
impacts for FDIC-supervised institutions.
---------------------------------------------------------------------------

\48\ 5 U.S.C. 601 et seq.
\49\ The SBA defines a small banking organization as having $850
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 87 FR 69118, effective December 19, 2022). 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 an IDI's affiliated and acquired
assets, averaged over the preceding four quarters, to determine
whether the insured depository institution is ``small'' for the
purposes of the RFA.
---------------------------------------------------------------------------

As discussed further below, the FDIC certifies that the proposed
rule, if adopted, will not have a significant economic impact on a
substantial number of FDIC-supervised small entities.
As of the quarter ending June 30, 2023, the FDIC insured 4,654
depository institutions, of which 3,373 are defined as small banking
organizations for the purposes of the RFA.\50\ In the period from 2020
through 2022, the FDIC received 9 bank-sponsored section 19
applications from small, FDIC-insured institutions, an average of 3 per
year. Additionally, the FDIC received 202 section 19 applications from
individuals during the same period, an average of about 67 per
year.\51\ To determine the maximum number of small, FDIC-insured
institutions that could be affected by the proposed rule, this analysis
assumes that each applicant is seeking employment at a different bank
and that each bank is a small, FDIC-insured institution. Based on these
assumptions, 70 (2.1 percent of) small, FDIC-insured institutions, on
average, annually, could be affected by the proposed rule.\52\ Section
19 applications from individuals are compelled by the applicant's
intent to seek employment at FDIC-insured institutions, many of which
are not small. Therefore, the FDIC believes that the number of small,
FDIC-insured institutions affected by the proposed rule is likely to be
less than 70.
---------------------------------------------------------------------------

\50\ FDIC Call Report, March 31, 2023.
\51\ FDIC Application Tracking System.
\52\ (70/3,433) * 100 = 2.04 percent.
---------------------------------------------------------------------------

As discussed in the SUPPLEMENTARY INFORMATION section, the proposed
rule would align the FDIC's regulations with the FHBA's provisions,
make additional

[[Page 77913]]

changes to further clarify the FDIC's regulations related to section
19, more closely align the FDIC's section 19 regulations with those of
other Federal financial regulators, and make a number of non-
substantive, technical edits. Most of the proposed changes were
precipitated by the FHBA--which was effective immediately upon
passage--and the proposed rule aligns the FDIC's regulations with these
elements of the FHBA; therefore, most of the associated changes in the
proposed rule will have no direct effect on individuals or IDIs.
Further, since the FDIC estimates that a maximum of 70 small, FDIC-
insured institutions could be affected by the proposed rule, on
average, annually, any direct affects realized as a result of the
proposed rule are likely to be small and affect a relatively small
number of entities.
In light of the foregoing, the FDIC certifies that the proposed
rule would not have a significant economic impact on a substantial
number of small entities. The FDIC invites comments on all aspects of
the supporting information provided in this RFA section. In particular,
would this proposed rule have any significant effects on small entities
that the FDIC has not identified?

C. Plain Language

Section 722 of the Gramm-Leach-Bliley Act \53\ requires each
Federal banking agency (FBA) to use plain language in its proposed and
final rules published after January 1, 2000. The FDIC has sought to
present the proposed rule in a simple and straightforward manner. The
FDIC invites comments on whether the proposal is clearly stated and
effectively organized, and how the FDIC might make the proposal easier
to understand. For example:
---------------------------------------------------------------------------

\53\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 (1999),
12 U.S.C. 4809.
---------------------------------------------------------------------------

<bullet> Has the FDIC organized the material to suit your needs? If
not, how could it present the rule more clearly?
<bullet> Have we clearly stated the requirements of the rule? If
not, how could the rule be more clearly stated?
<bullet> Does the rule contain technical jargon that is not clear?
If so, which language requires clarification?
<bullet> Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would make the regulation easier to
understand?
<bullet> What else could we do to make the regulation easier to
understand?

D. Riegle Community Development and Regulatory Improvement Act of 1994

Under section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\54\ 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. 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.\55\ The FDIC invites comments
that further will inform its consideration of RCDRIA.
---------------------------------------------------------------------------

\54\ 12 U.S.C. 4802(a).
\55\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 303

Administrative practice and procedure, Bank deposit insurance,
Banks, banking, Reporting and recordkeeping requirements, Savings
associations.

12 CFR Part 308

Administrative practice and procedure, Bank deposit insurance,
Banks, banking, Claims, Crime, Equal access to justice, Fraud,
Investigations, Lawyers, Penalties, Savings associations.

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 proposes to amend 12 CFR
parts 303 and 308 as follows:

PART 303--FILING PROCEDURES

0
1. The authority citation for part 303 is revised to read as follows:

Authority: 12 U.S.C. 378, 1464, 1813, 1815, 1817, 1818, 1819(a)
(Seventh and Tenth), 1820, 1823, 1828, 1829, 1831a, 1831e, 1831o,
1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5414, 5415,
and 15 U.S.C. 1601-1607.

0
2. Revise subpart L, consisting of Sec. Sec. 303.220 through 303.231,
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 Federal Deposit Insurance Act?
303.221 Who is covered by section 19?
303.222 Which offenses qualify as ``Covered Offenses'' under section
19?
303.223 What constitutes a conviction under section 19?
303.224 What constitutes a pretrial diversion or similar program
under section 19?
303.225 What are the types of applications that can be filed?
303.226 When may an application be filed?
303.227 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?
303.231 Waiting time for a subsequent application if an application
is denied.

Sec. 303.220 What is section 19 of the Federal Deposit Insurance Act?

(a) This subpart covers applications under section 19 of the
Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1829. The FDIC
refers to such applications as ``consent applications.'' 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 (collectively, Covered
Offenses), 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 prohibits an IDI from permitting such a
person to engage in any conduct or to continue any relationship
prohibited by section 19. IDIs must therefore make a reasonable,
documented inquiry to verify an applicant's history to ensure that a
person who has a Covered Offense under 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 to determine if the
applicant is prohibited under section 19, but the

[[Page 77914]]

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 prohibited under section 19.
(c) If there is a conviction or program entry covered by the
prohibitions 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. The purpose of an
application is to provide the applicant an opportunity to demonstrate
that, notwithstanding the prohibition, 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.

Sec. 303.221 Who is covered by section 19?

(a) Persons covered by section 19 include 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 directors, officers, and employees of
an IDI who 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 are covered by section 19 depends upon their
degree of influence or control over the management or affairs of an
IDI. For example, section 19 would apply to an officer or director of
an IDI's holding company 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 IDI. Typically, an independent contractor
does not have a relationship with the IDI other than the activity for
which the institution has contracted. However, 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, directly or indirectly, an IDI.
The terms control and ownership under section 19 shall have the meaning
given to those terms in subpart E of this part (including the
rebuttable presumptions stated in subpart E).
(1) A person will be deemed to exercise ``control'' if that
person--
(i) Has the ability to direct the management or policies of an IDI;
(ii) Has the power to vote 25 percent or more of the voting shares
of an IDI; or
(iii) Has the power to vote 10 percent of the voting shares of an
IDI if--
(A) No other person owns, controls, or has the power to vote more
shares; or
(B) The institution has registered securities under section 12 of
the Securities Exchange Act of 1934 (15 U.S.C. 78l).
(2) Under this paragraph (d), a person will be deemed to ``own'' an
IDI if that person owns--
(i) 25 percent or more of the institution's voting stock; or
(ii) 10 percent of the voting shares if--
(A) No other person owns more; or
(B) The institution has registered securities under section 12 of
the Securities Exchange Act of 1934 (15 U.S.C. 78l).
(3) The standards in this paragraph (d) 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 must divest their control or ownership of
shares above the foregoing limits.

Sec. 303.222 Which offenses qualify as ``Covered Offenses'' under
section 19?

(a) Categories of Covered Offenses. The conviction or program entry
must be for a criminal offense involving dishonesty, breach of trust,
or money laundering.
(1) The term criminal offense involving dishonesty--
(i) Means an offense under which an individual, directly or
indirectly--
(A) Cheats or defrauds; or
(B) Wrongfully takes property belonging to another in violation of
a criminal statute;
(ii) Includes an offense that Federal, State, or local law defines
as dishonest, or for which dishonesty is an element of the offense; and
(iii) Does not include--
(A) A misdemeanor criminal offense committed more than one year
before the date on which an individual files a consent application,
excluding any period of incarceration; or
(B) An offense involving the possession of controlled substances.
At a minimum, this exclusion applies to criminal offenses involving the
simple possession of a controlled substance and possession with intent
to distribute a controlled substance. This exclusion may also apply to
other drug-related offenses depending on the statutory elements of the
offenses or from court determinations that the statutory provisions of
the offenses do not involve dishonesty, breach of trust, or money
laundering, as noted in paragraph (b) of this section. Potential
applicants may contact their appropriate FDIC Regional Office if they
have questions about whether their offenses are covered under section
19.
(iv) The term offense committed in paragraph (a)(1)(iii)(A) of this
section means the last date of the underlying misconduct. In instances
with multiple offenses, offense committed means the last date of any of
the underlying offenses.
(2) The term 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) Elements of the offense. 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) Certain older offenses excluded--(1) Exclusions for certain
older offenses. Section 19 does not apply to an offense if--
(i) It has been 7 years or more since the offense occurred; or
(ii) The individual was incarcerated with respect to the offense
and it has been 5 years or more since the individual was released from
incarceration.
(iii) The term offense occurred means the last date of the
underlying misconduct. In instances with multiple Covered Offenses,
offense occurred means the last date of any of the underlying offenses.

[[Page 77915]]

(2) Offenses committed by individuals 21 year of age or younger.
For individuals who committed an offense when they were 21 years of age
or younger, section 19 does not apply to the offense if it has been
more than 30 months since the sentencing occurred. The term sentencing
occurred means the date on which a court imposed the sentence, not the
date on which all conditions of sentencing were completed.
(3) Limitation. This paragraph (c) does not apply to an offense
described under 12 U.S.C. 1829(a)(2).
(d) Designated lesser offenses excluded. Section 19 does not apply
to the following offenses, if one year or more has passed since the
applicable conviction or program entry: using fake identification;
shoplifting; trespassing; fare evasion; and driving with an expired
license or tag.
(e) Foreign convictions. Individuals who are convicted of or enter
into a pretrial diversion program for a criminal offense involving
dishonesty, breach of trust, or money laundering in any foreign
jurisdiction are subject to section 19, unless the offense is otherwise
excluded by this subpart.

Sec. 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 Sec. 303.224. Section 19 does not cover acquittals or any
conviction that has been reversed on 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 Sec. 303.224, is subsequently convicted of an offense
that is not a Covered Offense, the conviction is not subject to section
19.
(c) Expungement, dismissal, and sealing. A conviction is not
considered a conviction of record and does not require an application
if--
(1) There is an order of expungement, sealing, or dismissal that
has been issued in regard to the conviction in connection with such
offense, or if a conviction has been otherwise expunged, sealed, or
dismissed by operation of law; and
(2) It is intended by the language in the order itself, or in the
legislative provisions under which the order was issued, or in other
legislative provisions, that the conviction shall be destroyed or
sealed from the individual's State, Tribal, or Federal record, even if
exceptions allow the conviction to be considered for certain character
and fitness evaluation purposes.
(d) Youthful offenders. An adjudication by a court against a person
as a ``youthful offender'' (or similar term) under any youth-offender
law applicable to minors as defined by state law, or any judgment as a
``juvenile delinquent'' (or similar term) 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 Sec. 303.227.

Sec. 303.224 What constitutes a pretrial diversion or similar program
under section 19?

(a) The term pretrial diversion or similar program (program entry)
means a program characterized by a suspension or eventual dismissal or
reversal of charges or criminal prosecution upon agreement by the
accused to restitution, drug or alcohol rehabilitation, anger
management, or community service. 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 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 Sec. 303.227.
(c) Expungements, dismissals, or sealings of program entries will
be treated the same as those for convictions.

Sec. 303.225 What are the types of applications that can be filed?

(a) The FDIC will accept applications from--
(1) An individual;
(2) An IDI applying on behalf of an individual;
(3) A depository institution holding company applying on behalf of
an individual with respect to an IDI subsidiary of the holding company;
and
(4) A depository institution holding company applying on behalf of
an individual who will work at the holding company but also participate
in the affairs of the IDI or who would be in a position to influence or
control the management or affairs of the IDI, in accordance with Sec.
303.221(a).
(b) An individual or an institution may file applications at
separate times. Under either approach, the application(s) must be filed
with the appropriate FDIC Regional Office, as required by this subpart.

Sec. 303.226 When may an application be filed?

Except for situations in which no application is required under
section 19 and this subpart, an application must be filed when there is
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 may be
filed, all of the sentencing requirements associated with a conviction,
or conditions imposed by the program entry, including but not limited
to, imprisonment, fines, conditions 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.

Sec. 303.227 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 paragraph (b)(2) of
this section).
(2) For each Covered Offense, the individual could have been
sentenced to a term of confinement in a correctional facility of three
years or less and/or a fine of $2,500 or less, and the individual
actually served three days or less of jail time for each Covered
Offense.
(3) Jail time under paragraph (a)(2) of this section is calculated
based on the time an individual spent incarcerated as

[[Page 77916]]

a punishment or a sanction--not as pretrial detention--and does not
include probation or parole where an individual was restricted to a
particular jurisdiction or was required to report occasionally to an
individual or a specific location. 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 either of the following: persons who are restricted to a
substance-abuse treatment program facility for part or all of the day;
or persons who are ordered to attend outpatient psychiatric treatment.
(4) 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 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 insufficient funds checks is $2,000 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 paragraph (b) if the
following conditions apply:
(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.
(v) Simple theft excludes burglary, forgery, robbery, identity
theft, and fraud.
(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
must disclose the presence of the conviction(s) or program entry(ies)
to all IDIs in the affairs of which that person 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.

Sec. 303.228 How to file an application.

Forms and instructions should be obtained from the FDIC's website
(<a href="http://www.fdic.gov">www.fdic.gov</a>), and the application(s) must be filed with the
appropriate FDIC Regional Office. An application may be filed by an
individual and by an IDI or depository institution holding company on
behalf of an individual. The appropriate Regional Office for an
institution-sponsored application is the office covering the state
where the institution's home office is located. The appropriate
Regional Office for an individual application 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.

Sec. 303.229 How an application is evaluated.

(a) Criminal-history records. In reviewing an application, the FDIC
will--
(1) Primarily rely on the criminal history record of the Federal
Bureau of Investigation (rap sheet); and
(2) Provide such record to the applicant to review for accuracy.
(b) Certified copies. The FDIC will not require an applicant to
provide certified copies of criminal history records unless the FDIC
determines that there is a clear and compelling justification to
require additional information to verify the accuracy of the criminal
history record of the Federal Bureau of Investigation.
(c) Ultimate determinations. The ultimate determinations in
assessing an application are whether the person has demonstrated their
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.
(d) Individualized assessment. When evaluating applications, the
FDIC will conduct an individualized assessment that will consider:
(1) Whether the conviction or program entry is subject to section
19, 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 applicant's age at
the time of the conviction or program entry, the time that has elapsed
since the conviction or program entry, and the relationship of the
individual's offense to the responsibilities of the applicable
position;
(4) The individual's employment history, letters of recommendation,
certificates documenting participation in substance-abuse programs,
successful participating in job preparation and educational programs,
and other relevant evidence;
(5) The ability of management of the IDI to supervise and control
the person's activities;
(6) The level of ownership or control the person will have of an
IDI;
(7) The applicability of the IDI's fidelity bond coverage to the
person; and
(8) 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.
(e) No re-consideration of guilt. The question of whether a person,
who was convicted of a crime or who agreed to

[[Page 77917]]

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.
(f) Factors considered for enumerated offenses. 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.
(g) Mandatory conditions of approval. 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. If the FDIC has
approved an application filed by an individual and has issued a consent
order, the individual must disclose the presence of the conviction(s)
or program entry(ies) to all IDIs in the affairs of which they wish to
participate.
(h) Institution-sponsored applications: work at same employer. When
deemed appropriate by the FDIC, institution-sponsored applications are
to allow the individual to work for the same employer (without
restrictions on the location) and across positions, except that the
prior consent of the FDIC (which may require a new application) will be
required for any proposed significant changes in the individual's
security-related duties or responsibilities, such as promotion to an
officer or other positions that the employer determines will require
higher security screening credentials.
(i) Work at a different employer after certain approvals. 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.

Sec. 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 Sec. 303.229.
(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 FDIC 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.

Sec. 303.231 Waiting time for a subsequent application if an
application is denied.

(a) 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 FDIC Board of
Directors, or its designee, denying the application. Unless with the
passage of time the individual is no longer subject to section 19, 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.
(b) An institution-sponsored application is not subject to the one-
year waiting period if the application--
(1) Follows the denial of an individual application; or
(2) Follows the denial of an institution-sponsored application and
the subsequent application is sponsored by a different institution or
is for a different position.

PART 308--RULES OF PRACTICE AND PROCEDURE

0
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.

0
4. Revise Sec. 308.156 to read as follows:

Sec. 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), depository institution holding company, or an
individual (any of which could be termed an applicant). Section 19
states that if an 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, the individual must
seek the prior written consent of the FDIC to: become or continue as an
institution-affiliated party (IAP) with respect to an IDI; own or
control directly or indirectly an IDI; or participate directly or
indirectly in any manner in the conduct of the affairs of an IDI. This
subpart shall apply only after such application has been denied under
12 CFR part 303, subpart L.
0
5. Amend Sec. 308.158 by revising paragraphs (b) and (d) through (f)
to read as follows:

Sec. 308.158 Hearings.

* * * * *
(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 applicant seeking the FDIC's consent for an individual to: become
or continue as an IAP with respect to an IDI; own or control directly
or indirectly an IDI; or participate directly or indirectly in any
manner in the conduct of the affairs of an IDI.
* * * * *
(d) Written submissions in lieu of hearing. The applicant 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, and if there has not been a written submission in lieu of a
hearing, the individual shall remain prohibited under section 19.
(f) Decision by Board of Directors or its designee. Within 60 days
following the Administrative Officer's certification of the record to
the Board of Directors or its designee, the Board of Directors or its
designee shall notify the applicant whether the individual shall remain
prohibited 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.

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, on October 24, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-23853 Filed 11-13-23; 8:45 am]
BILLING CODE 6714-01-P

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