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Rule2024-17327

Fair Hiring in Banking Act

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Published

August 7, 2024

Effective

October 1, 2024

Issuing agencies

Federal Deposit Insurance Corporation

Abstract

The Federal Deposit Insurance Corporation (FDIC) is revising 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 relatively minor offenses. The FHBA also clarified several definitions in section 19 and provided application-processing procedures. The FDIC considers most of the revisions to its regulations to be required by the FHBA. Most other revisions reflect the FDIC's interpretation of statutory prohibitions in light of the FHBA.

Full Text

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<title>Federal Register, Volume 89 Issue 152 (Wednesday, August 7, 2024)</title>
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[Federal Register Volume 89, Number 152 (Wednesday, August 7, 2024)]
[Rules and Regulations]
[Pages 64353-64367]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-17327]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303 and 308

RIN 3064-AF92

Fair Hiring in Banking Act

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is revising

[[Page 64354]]

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
relatively minor offenses. The FHBA also clarified several definitions
in section 19 and provided application-processing procedures. The FDIC
considers most of the revisions to its regulations to be required by
the FHBA. Most other revisions reflect the FDIC's interpretation of
statutory prohibitions in light of the FHBA.

DATES: rule will be effective on October 1, 2024.

FOR FURTHER INFORMATION CONTACT: Timothy Schuett, Senior Review
Examiner, 763-614-9473, <a href="/cdn-cgi/l/email-protection#21555242495444555561474548420f464e57"><span class="__cf_email__" data-cfemail="87f3f4e4eff2e2f3f3c7e1e3eee4a9e0e8f1">[email&#160;protected]</span></a>; Brian Zeller, Senior Review
Examiner, 571-345-8170, <a href="/cdn-cgi/l/email-protection#51332b343d3d342311373538327f363e27"><span class="__cf_email__" data-cfemail="caa8b0afa6a6afb88aacaea3a9e4ada5bc">[email&#160;protected]</span></a>, Division of Risk Management
Supervision; or Graham Rehrig, Counsel, 703-314-3401, <a href="/cdn-cgi/l/email-protection#d6b1a4b3bea4bfb196b0b2bfb5f8b1b9a0"><span class="__cf_email__" data-cfemail="bddacfd8d5cfd4dafddbd9d4de93dad2cb">[email&#160;protected]</span></a>,
Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objective

The policy objective of the rule is to revise the FDIC's
regulations concerning section 19 of the Federal Deposit Insurance Act
(section 19) \1\ to conform with the FHBA.\2\ These regulations
provide, among other things, the application process for insured
depository institutions (IDIs) and individuals who seek relief from
section 19 as well as information about section 19 and the FDIC's
interpretation of the statute.
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\1\ 12 U.S.C. 1829.
\2\ 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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II. Background and Public Comments

Section 19 prohibits, without the prior written consent of the FDIC
(the FDIC refers to applications for such consent as ``consent
applications'',\3\) the participation in an IDI 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
IDI from permitting such a person to engage in any such conduct or to
continue any relationship prohibited by section 19. Section 19 also
imposes a separate 10-year minimum for the automatic prohibition of a
person convicted of certain crimes enumerated in title 18 of the United
States Code (U.S.C.), although an exception may be granted upon a
motion by the FDIC and approval by the sentencing court.
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\3\ 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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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.\4\ 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.'' \5\ 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 12 CFR part
308, subpart M.\6\
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\4\ See 63 FR 66177 (Dec. 1, 1998); 72 FR 73823 (Dec. 28, 2007)
with correction issued at 73 FR 5270 (Jan. 29, 2008); 76 FR 28031
(May 13, 2011); 77 FR 74847 (Dec. 18, 2012); 83 FR 38143 (Aug. 3,
2018).
\5\ See 84 FR 68353 (Dec. 16, 2019).
\6\ See 85 FR 51312 (Aug. 20, 2020).
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On December 23, 2022, the President signed into law the FHBA, 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:
<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 more than 30 months since the sentencing occurred.\7\
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\7\ 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> De minimis offenses: a category of relatively minor
offenses that are either specified by the FHBA or by the FDIC through
regulations. In the FHBA, a subcategory of de minimis offenses is
called ``designated lesser offenses,'' which offenses include 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, excluding any period of
incarceration.
<bullet> A criminal offense involving dishonesty that ``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 mitigating
evidence, and any additional information the FDIC determines necessary
for safety and soundness shall also be considered.
On November 14, 2023, the FDIC published a notice of proposed
rulemaking (proposal) to conform the FDIC's section 19 regulations with
the

[[Page 64355]]

FHBA.\8\ The FDIC issued the proposal following consultation and
coordination with the National Credit Union Administration (NCUA), the
Board of Governors of the Federal Reserve System (FRB), and the Office
of the Comptroller of the Currency (OCC) ``to promote consistent
implementation [of the FHBA] where appropriate.'' \9\ The FDIC proposed
to revise its rules and procedures in order to conform them to the FHBA
and to clarify certain provisions of that statute. For example, the
FDIC proposed to revise 12 CFR part 303, subpart L, to reflect the
FHBA's exclusion of certain older offenses from the scope of section
19. The FDIC requested comments on all aspects of its approach to
section 19 and, specifically, the following topics of interpretation:
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\8\ See 88 FR 77906 (Nov. 14, 2023).
\9\ 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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<bullet> the date on which a criminal offense ``occurred'' or was
``committed;''
<bullet> the date on which ``sentencing occurred;''
<bullet> whether section 19 encompasses foreign convictions and
pretrial diversions;
<bullet> the standard for expungements, sealings, and dismissals;
<bullet> ``offenses involving controlled substances;'' and
<bullet> de minimis offenses.
The comment period closed on January 16, 2024. The FDIC received
five comments from six different commenters, consisting of two
individuals and four advocacy groups (two advocacy groups provided a
joint comment). All of the comments generally supported the proposal.
The comment received from one advocacy group did not offer specific
changes to the proposal but urged the FDIC and other financial
regulators to strengthen their enforcement practices. The other
commenters suggested a variety of changes. The comments and the FDIC's
responses are discussed below in sections III and V of this document.

III. Description of the Final Rule

The primary purpose of the final rule is to align the FDIC's
section 19 regulations with the FHBA. The 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. Significant
revisions to the FDIC's current regulations \10\ include the following:
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\10\ The rule would also make a number of technical or
clarifying 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?
Paragraph (b) clarifies that each IDI 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. In the FDIC's 2020 Final Rule concerning revisions to its
section 19 regulations, the FDIC stated, ``The procedures that
constitute a reasonable inquiry will vary from bank to bank, and the
FDIC believes that this determination is best left to the business
judgments of these institutions.'' \11\ The FDIC reaffirms this
position (with the added requirement since 2020 that the inquiry be
documented), in response to one commenter's suggestion.
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\11\ 85 FR at 51317.
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One commenter recommended that the FDIC clarify that a
``reasonable, documented inquiry'' would include verifying that the
date of any conviction or program entry occurred at least one year or
seven years prior, as applicable. (This commenter did not take into
consideration the offenses enumerated in 12 U.S.C. 1829(a)(2) that are
not affected by the FHBA's time-based exclusions.) As discussed in
greater detail later in this preamble, the FDIC interprets the terms
``offense occurred'' and ``offense committed'' in the FHBA to mean the
last date of the underlying misconduct rather than the date of
conviction or program entry. But since the date of conviction or
program entry necessarily follows the last date on which the underlying
misconduct occurred, there may be circumstances in which the date of
conviction or program entry may provide sufficient information to an
IDI that an offense is excluded from the scope of section 19. For
example, if a State felony conviction occurred 10 years ago, it would
be clear from the criminal record that the conviction is not subject to
section 19's prohibitions, and the use of the conviction date could be
used by the IDI to establish a reasonable, documented inquiry. On the
other hand, if an IDI cannot ascertain whether an offense is subject to
section 19 based on the date of conviction or program entry, it may be
necessary for the IDI to perform additional research to determine the
last date of the underlying misconduct. The FDIC is not, however,
prescribing the exact procedures that IDIs should follow in conducting
a reasonable, documented inquiry.
2. Section 303.221 Who is covered by section 19?
Paragraph (d) more closely aligns 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.\12\
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. The FDIC has clarified in
paragraph (a), however, that the term ``acting in concert'' has the
meaning given to that term in 12 CFR part 303, subpart E (including the
rebuttable presumption of ``acting in concert'' stated in that
subpart).
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\12\ 15 U.S.C. 78l.
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3. Section 303.222 Which offenses qualify as ``Covered Offenses''
under section 19?
Paragraph (a) reflects the statutory definition of ``criminal
offense involving dishonesty.'' \13\ The FHBA excludes from the scope
of such offenses ``an offense involving the possession of controlled
substances.'' \14\ 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

[[Page 64356]]

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. This revised regulatory language marks 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.
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\13\ See 12 U.S.C. 1829(g)(2).
\14\ 12 U.S.C. 1829(g)(2)(C)(ii).
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One commenter specifically supported the FDIC's proposal concerning
controlled substances. Another commenter said that the FDIC's proposed
language was overly broad and contrary to congressional intent and that
the proposed exclusion should be limited to the offense of simple
possession of controlled substances. This commenter added that banks
would face reputational risks if they hired individuals who had been
convicted of the crime of possession with the intent to distribute
controlled substances. This commenter also recommended that the FDIC
retain its regulatory text concerning the illegal manufacture, sale,
distribution of, or trafficking in controlled substances.
The FDIC believes that the proposed language is consistent with the
text and purposes of the FHBA and would align the FDIC's interpretation
of section 19 as to offenses involving controlled substances more
closely with other Federal banking regulators. The FHBA explicitly
excludes from the category of ``criminal offense involving dishonesty''
``an offense involving the possession of controlled substances,'' not
just the offense of ``possession of controlled substances.'' \15\ The
modifier ``involving,'' in the FDIC's view, expands that exclusion
beyond simple-possession offenses. The revised regulatory language,
however, will recognize that a drug-related offense could potentially
involve dishonesty, breach of trust, or money laundering. Moreover,
while section 19 provides statutory barriers to the employment of
certain individuals due to their criminal history, IDIs otherwise
retain the discretion, under that statute, as to which applicants they
want to hire. The FDIC also notes that this revision to its section 19
regulations will 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.
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\15\ See 12 U.S.C. 1829(g)(2)(C)(ii) (emphasis added).
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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.''
\16\ 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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\16\ 12 U.S.C. 1829(g)(2)(C)(i).
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Revised paragraph (c) includes new language reflecting the
statute's exception of certain older offenses from the scope of section
19.\17\ 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.'' \18\ 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.
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\17\ See 12 U.S.C. 1829(c)(1).
\18\ 12 U.S.C. 1829(c)(1)(A)(i).
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Two commenters disagreed with the FDIC's proposal and stated that
``offense occurred'' or ``offense committed'' should mean the date of
the plea, conviction, or program entry. In the FDIC's view, however,
the plain meaning of the terms ``committed'' and ``occurred'' mean when
the underlying misconduct happened. This interpretation is buttressed
by Congress's use of the date of conviction or program entry elsewhere
in the statute; that is, the statute distinguishes between when
misconduct was ``committed'' or ``occurred'' and the date of a
``conviction'' or ``program entry.'' \19\
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\19\ See, e.g., 12 U.S.C. 1829(c)(3)(D) (``Subsection (a) shall
not apply to certain lesser offenses (including the use of a fake
ID, shoplifting, trespass, fare evasion, driving with an expired
license or tag, and such other low-risk offenses as the Corporation
may designate) if 1 year or more has passed since the applicable
conviction or program entry'' (emphasis added).)
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Two commenters expressed concerns that IDIs would have difficulty
with ascertaining the underlying date(s) of misconduct for job
applicants, as part of background inquiries. The commenters noted that
background-check reports that are commercially or otherwise available
tend to list the date of arrest, conviction, or release from
incarceration but not necessarily the date of the underlying
misconduct. The FDIC believes that, for many applicants, an IDI will be
able to determine whether an offense is covered by section 19 using the
background-check reports noted by the commenters. And as stated earlier
in this preamble, an IDI may conduct a reasonable, documented inquiry
by using the date of conviction or program entry if it is clear from
that information that an applicant's offense is not subject to section
19 due to the amount of time that has elapsed. On the other hand, if an
IDI cannot ascertain whether an offense is subject to section 19 based
on the date of conviction or program entry, it may be necessary for the
IDI to perform additional research to determine the last date of the
underlying misconduct.
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.'' \20\ 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 an IDI before a similarly
situated individual who was not incarcerated in connection with an
offense. This difference is due to the FHBA's use of a shorter time
period for individuals who were incarcerated for an offense than for
individuals who did not serve jail time. 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.'' \21\ The FDIC
interprets ``sentencing occurred'' to mean the date on which a court
imposed the sentence (as indicated by the date on the court's
sentencing order), 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).\22\
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\20\ 12 U.S.C. 1829(c)(1)(A)(ii).
\21\ 12 U.S.C. 1829(c)(1)(B).
\22\ See 12 U.S.C. 1829(c)(1)(C).
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One commenter agreed with the FDIC that the term ``sentencing
occurred''

[[Page 64357]]

should mean the date when sentence was imposed by the court. Another
commenter--to the NCUA's parallel notice of proposed rulemaking under
the FHBA \23\--suggested that the term ``sentencing occurred'' should
mean the date that appears on the sentencing order, instead of the date
the court's clerk entered the order on the docket. The FDIC agrees with
this suggestion, as indicated above.
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\23\ See 88 FR 76702 (Nov. 7, 2023).
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Revised paragraph (d) 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.
One commenter stated that foreign convictions and pretrial
diversions should be excluded from the scope of section 19. This
commenter cited the difficulty of investigating criminal matters in
foreign jurisdictions in which an applicant may have worked or resided,
noted that banks might not have operations in such jurisdictions, and
expressed concern that banks could expose themselves to liability in
foreign jurisdictions through conducting background checks. Moreover,
this commenter said that certain applicants for bank employment may
already have completed a background check for the visa process;
therefore, there would be a risk of duplication with a bank's
investigation.
The FDIC has retained its proposed language as to foreign offenses
due to the importance of ensuring that individuals with covered
offenses do not participate in the affairs of IDIs without the FDIC's
consent. Employers may be unaware of an applicant's foreign offenses
without conducting their own inquiry, and many countries have their own
application processes to conduct criminal background checks. The FDIC
reiterates several non-exhaustive ways in which banks could comply with
this requirement. For IDI 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. And
if a foreign jurisdiction forbade background investigations by an IDI,
the IDI could note this restriction as part of its reasonable,
documented inquiry.
4. Section 303.223 What constitutes a conviction under section 19?
Paragraph (c) has been revised to reflect statutory language
related to the treatment of orders of expungement, sealing, or
dismissal of criminal records.\24\ 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.'' \25\ 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 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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\24\ See 12 U.S.C. 1829(c)(2).
\25\ 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.'' \26\
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\26\ 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).\27\ 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 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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\27\ 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.\28\
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\28\ 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 includes 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.

[[Page 64358]]

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.'' \29\ 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.''
\30\ While the FDIC has not explicitly mentioned these requirements in
its regulations, the agency will comply with them. One commenter agreed
with the FDIC's proposal concerning this provision of forms and
instructions.
---------------------------------------------------------------------------

\29\ 12 U.S.C. 1829(f)(5)(A).
\30\ 12 U.S.C. 1829(f)(5)(B).
---------------------------------------------------------------------------

8. Section 303.227 De minimis Exemption
The FDIC has made a number of changes to this section based on the
statutory revisions and helpful comments received. Two commenters asked
for additional clarity on what constitutes a de minimis offense.
Another commenter requested that the FDIC revise this section to exempt
de minimis offenses from the scope of section 19's prohibition, to
align with the FHBA. In agreement, the FDIC has revised this section to
treat de minimis offenses--a category that includes the sub-category
``designated lesser offenses''--as offenses that are excluded from the
prohibitions of 12 U.S.C. 1829(a) (assuming certain conditions are met)
and for which offenses no application is required. This is a
substantive departure from the FDIC's longstanding treatment of de
minimis offenses, in which potential applicants with such offenses on
their records did not need to file an application with the FDIC because
the FDIC deemed their (potential) application automatically approved.
In other words, the FDIC considered such offenses covered under section
19 while the FHBA exempts those offenses entirely from section 19.
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.\31\ Revised paragraph (a)(2) reflects the FHBA's confinement
criteria as to the FDIC's determination of de minimis offenses.\32\
Revised paragraph (a)(5) requires that, in order for an offense or
offenses to qualify under the general de minimis framework, each
offense must not have been committed against an IDI or insured credit
union. This language aligns with the current FDIC regulations.
---------------------------------------------------------------------------

\31\ See 12 U.S.C. 1829(c)(3)(D).
\32\ See 12 U.S.C. 1829(c)(3)(B).
---------------------------------------------------------------------------

Revised paragraph (b)(1) (Age of person at time of Covered Offense)
clarifies that, for a reduced waiting period to apply before an
individual may qualify for the de minimis exemption, the underlying
convictions or program entries must meet the other de minimis criteria
in paragraph (a) of Sec. 303.227. This clarification reflects the
FDIC's existing interpretation of this paragraph.
The FDIC has revised 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.\33\ Revised paragraph (b)(4) excludes from the scope of
covered offenses ``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. One commenter requested that the FDIC should explain which
offenses are considered ``designated lesser offenses'' that do not
require FDIC consent. The FDIC believes that the revised regulations
adequately define such offenses.
---------------------------------------------------------------------------

\33\ See 12 U.S.C. 1829(c)(3)(C).
---------------------------------------------------------------------------

The FDIC has deleted former Sec. 303.227(c) concerning fidelity
bond coverage and disclosure of de minimis offenses to IDIs. This now-
deleted paragraph had required that 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. Since the FHBA has
excluded de minimis offenses from the scope of section 19, however, the
FDIC believes that these requirements should no longer attach to
individuals who have committed such offenses. This change is in
response to one commenter's request that the FDIC clarify its position
concerning de minimis offenses and is related to another commenter's
suggestion that the FDIC treat de minimis offenses the same way as
``designated lesser offenses'' by excluding both types of offenses from
the scope of section 19.
9. Section 303.228 How To File an Application
This revised section eliminates the institution filing requirement
and waiver process and indicates that an ``institution''--an IDI or a
depository institution holding company--may file an application on
behalf of an individual, rather than just an IDI. The individual may
also file an application. These revisions are due to the updated
statutory language.\34\ This revised section also clarifies that the
appropriate FDIC Regional Office for an institution-sponsored
application is the office covering the state where the institution's
home office is located and that the appropriate FDIC Regional Office
for an application filed by an individual is the office covering the
state where the person resides.
---------------------------------------------------------------------------

\34\ See 12 U.S.C. 1829(f)(1).
---------------------------------------------------------------------------

10. Section 303.229 How an Application Is Evaluated
Revised paragraph (a) reflects new statutory requirements related
to the FDIC's review process, including the requirement that the FDIC
primarily rely on the criminal history record provided by the Federal
Bureau of Investigation in the FDIC's review and provide such record to
the applicant to review for accuracy.\35\ 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, will provide a copy of the rap sheet to the
individual who is the subject of the application to review for
accuracy.\36\
---------------------------------------------------------------------------

\35\ See 12 U.S.C. 1829(f)(6)(A)(i).
\36\ See 12 U.S.C. 1829(f)(6)(A)(ii).
---------------------------------------------------------------------------

One commenter requested that the FDIC establish a deadline to
evaluate the application once received and a deadline of five days to
return the copy of the criminal history record once received from the
Federal Bureau of Investigation. The FDIC adopts this recommendation in
part. Under revised paragraph (a)(2), the FDIC will make reasonable
efforts to communicate with the subject of the application within 15
calendar days of receipt of this record from the Federal Bureau of
Investigation to inform the individual that the FDIC will be providing
them with a copy of the report and to verify the individual's contact
information. The FDIC will also make reasonable efforts to send the
report to the individual within 5 business days of successful
verification of the individual's contact information. If the individual
believes that there are any inaccuracies in the report, the FDIC will
direct the individual to an appropriate contact at the Federal Bureau
of Investigation where the individual can seek corrections to the
report.

[[Page 64359]]

Revised paragraph (b) states that the FDIC will not require an
individual 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 provided by the Federal Bureau of
Investigation (that is, the rap sheet).\37\
---------------------------------------------------------------------------

\37\ 12 U.S.C. 1829(f)(6)(B).
---------------------------------------------------------------------------

Revised paragraph (d) clarifies how the FDIC will evaluate evidence
of rehabilitation and other evidence, as required by the FHBA.\38\
---------------------------------------------------------------------------

\38\ 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 rule uses the
term ``rehabilitation'' not ``mitigating.''
---------------------------------------------------------------------------

Revised paragraph (g) eliminates references to the former
application-waiver requirement.
Finally, revised paragraph (h) incorporates statutory language
explaining when a new institution-sponsored application would be
necessary due to changes in the scope of an applicant's employment.\39\
---------------------------------------------------------------------------

\39\ See 12 U.S.C. 1829(f)(8).
---------------------------------------------------------------------------

11. Section 303.230 What will the FDIC do if the application is denied?
Revised paragraph (b) clarifies that, for institution-sponsored
applications, either the institution or the subject individual (or
both, as a consolidated request) may file a written request for a
hearing (or a request for written submission in lieu of a hearing)
under 12 CFR part 308, subpart M.
12. Section 303.231 Waiting Time for a Subsequent Application if an
Application Is Denied
This revised section, among other provisions, requires a one-year
waiting period to file a consent application, following the issuance of
a decision denying such an application. This general requirement is
substantially unchanged from existing regulations, but the FDIC has
made several technical amendments to align this section with the FHBA.
Revised paragraph (a) acknowledges that the passage of time may remove
an offense from the scope of section 19. And the final rule creates a
new paragraph (b)--which notes 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 rule makes several technical amendments to subpart M. The rule
revises the subpart's title to reflect that, following a denial of an
application under 12 CFR part 303, subpart L, an applicant may request
either a hearing or written submissions in lieu of a hearing. The rule
also amends Sec. Sec. 308.156, 308.157, and 308.158 to do the
following: (1) encompass applications that are sponsored by depository
institution holding companies; (2) explain that, if an application has
been denied under 12 CFR part 303, subpart L, an applicant may request
either a hearing or written submissions in lieu of a hearing; (3)
clarify several sentences concerning hearing procedures; and (4) use
more consistent terminology.

IV. Expected Effects

As previously discussed, the rule aligns the FDIC's regulations
with the FHBA's provisions, makes additional changes to further clarify
the FDIC's regulations related to section 19, more closely aligns the
FDIC's section 19 regulations with those of other Federal financial
regulators, and makes a number of non-substantive, technical edits. As
of the quarter ending March 31, 2024, there were 4,577 FDIC-insured
depository institutions, all of which are covered by the rule and
therefore could be affected.\40\ Additionally, the rule applies 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.
---------------------------------------------------------------------------

\40\ FDIC Call Report data, March 31, 2024.
---------------------------------------------------------------------------

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 2021 and 2023. Over this period, the FDIC received 16
bank-sponsored section 19 applications, an average of 5 per year.
Additionally, the FDIC received 115 individual section 19 applications
during the same period, an average of approximately 38 per year.\41\
Therefore, the FDIC estimates that the rule could affect at least 5
FDIC-insured depository institutions and 38 individuals per year.
Assuming that each application involves a different institution,
approximately 1 percent of insured institutions, or 43, could be
affected per year on average.\42\
---------------------------------------------------------------------------

\41\ FDIC Application Tracking System.
\42\ (43/4,577) * 100 = 0.9 percent.
---------------------------------------------------------------------------

As previously described, the rule aligns 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 rule incorporates 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 rule aligns the FDIC's regulations with these elements
of the FHBA; therefore, the associated changes in the rule will have no
direct effect on individuals or IDIs.
The rule amends 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 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. These
changes, moreover, were created by the FHBA and were effective
immediately upon passage, and the rule aligns the FDIC's regulations
with these elements of the FHBA; therefore, the associated changes in
the 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

[[Page 64360]]

marginally increase the scope of certain terms so as to better reflect
the purposes of the FHBA and adopt certain deadlines to facilitate
processing. In particular, the FDIC has provided broader language as to
the scope of expunged, sealed, or dismissed offenses. This aspect of
the 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. Further, the FDIC has
established certain deadlines to further clarify the evaluation process
for future applicants and facilitate processing. However, given that
most of the amendments are focused on aligning the FDIC's regulations
with the FHBA, the marginal effect of these aspects of the rule are
likely to be small.

V. Other Alternatives Considered

As discussed above, almost all of the significant changes to the
FDIC's section 19 regulations stem from the FHBA's revisions to section
19. The FDIC had limited discretion in adopting alternatives to those
statutory revisions. The FDIC considered other proposals that were
submitted by the commenters but believes that the final amendments
represent the most appropriate option for covered entities and
individuals. This section discusses those other proposals.

A. More Aggressive Enforcement

One commenter said that federal financial regulators should
increase the number of enforcement actions against and the severity of
the punishments for executives of large banks who harm consumers and
threaten the country's financial stability. This comment, in the FDIC's
view, is outside the scope of this rulemaking.

B. Data Collection, and Consider Effects on Criminal Justice System

One commenter suggested that the FDIC should collect information on
instances of criminal recidivism among bank employees, in light of the
FHBA's exclusion of previously covered offenses from the scope of
section 19. The FDIC declines to adopt this proposal because it would
be administratively impracticable for the FDIC to obtain this
information from the thousands of IDIs subject to section 19, and this
proposal would impose significant compliance burdens on those
institutions.
One commenter suggested that the FDIC consider how the rule might
affect the federal criminal justice system and public safety. This
commenter noted that some individuals may be released from prison early
or receive shorter sentences due to the First Step Act of 2018.\43\ In
response, the FDIC notes that it is finalizing this rulemaking in
accordance with the policy choices of Congress and the President.
---------------------------------------------------------------------------

\43\ Public Law 115-391, 132 Stat. 5194.
---------------------------------------------------------------------------

C. Proposals Received by the NCUA

On November 7, 2023, the NCUA issued a notice of proposed
rulemaking to implement the FHBA as to the NCUA's regulations,\44\ and
the NCUA received several comments addressing the following topics.
(Earlier in this Preamble, the FDIC addressed a suggestion from an NCUA
commenter that concerned the date on which a court imposed a sentence.)
The FDIC considered these other proposals--as part of its statutory
obligation to consult and coordinate with the NCUA to promote
consistent implementation of the FHBA \45\--and has decided not to
incorporate them into the final rule. These commenters made the
following recommendations, among others.
---------------------------------------------------------------------------

\44\ See 88 FR 76702.
\45\ See 12 U.S.C. 1829(f)(9).
---------------------------------------------------------------------------

Several commenters suggested that the de minimis exclusion should
not be available for offenses committed against any depository
institution or credit union--not just insured depository institutions
and insured credit unions. The FDIC's position is that the primary
purpose of section 19 is to protect IDIs and, by extension, the Deposit
Insurance Fund. Accordingly, the FDIC's de minimis framework focuses on
offenses that have been committed against such institutions (and
insured credit unions) rather than against non-federally insured
institutions. For this reason, the FDIC declines to implement this
suggestion.
One commenter recommended excluding pardoned offenses from the
scope of section 19 and suggested that pardoned offenses should be
treated the same as expunged offenses. The FDIC disagrees with this
recommendation and notes its longstanding position that covered
offenses that have been pardoned--and which are not otherwise excluded
from the scope of section 19--will still require an application. A
pardon typically cancels the punishment for a criminal offense, not the
underlying finding of guilt. In contrast, an expungement or sealing is
significantly more likely to result--by applicable statute of court
order--in the removal of the finding of guilt or otherwise result in a
legal determination that the offense should not be used against an
individual for employment purposes. Accordingly, in the FDIC's view, a
person with such an expunged or sealed offense tends to present less of
a risk to the banking system than a person whose same offense has been
pardoned.
One commenter suggested that the FDIC should increase the maximum
potential penalty threshold from $2,500 to $5,000 under the general de
minimis framework, in keeping with a certain federal criminal statute.
The FDIC declines to expand the de minimis framework as proposed
because the FDIC considers the current threshold appropriate. The
$2,500 amount is comparable to the $2,000 de minimis threshold for
insufficient-fund offenses under the FHBA.\46\
---------------------------------------------------------------------------

\46\ See 12 U.S.C. 1829(c)(3)(C).
---------------------------------------------------------------------------

VI. Regulatory Analysis

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

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

The FDIC received one comment that appears to relate to the PRA.
The commenter suggested that the FDIC should collect information on
instances of criminal recidivism among bank employees, in light of the
FHBA's exclusion of previously covered offenses from the scope of
section 19. The FDIC declines to adopt this proposal because it would
be administratively impracticable for the FDIC to obtain this
information from the thousands of IDIs subject to section 19, and this
proposal would impose significant compliance burdens on those
institutions. In other words, the compliance burden associated with
collecting this information would outweigh the benefits and practical
utility of collecting this information.
The FDIC will revise its section 19 application form to conform
with the changes to section 19 under the FHBA. These changes amend the
FDIC's existing information collection associated with this 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 final 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

[[Page 64361]]

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.
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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Type of burden Number of
IC description (obligation to Frequency of response Number of responses/ Hours per Annual burden
respond) respondents respondent response (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Application Pursuant to Section 19 Reporting (Required to On occasion................ 43 1 16 688
of the Federal Deposit Insurance obtain or retain
Act. benefits).
---------------------------------------------------------------
Total Annual Burden Hours...... ...................... ........................... .............. .............. .............. 688
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FDIC.

B. The Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a final rule, to prepare and make available for
public comment a final regulatory flexibility analysis that describes
the impact of the final rule on small entities.\48\ However, a final
regulatory flexibility analysis is not required if the agency certifies
that the final 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 final rule
will not have a significant economic impact on a substantial number of
FDIC-supervised small entities.
As of the quarter ending March 31, 2024, the FDIC insured 4,577
depository institutions, of which 3,259 are defined as small banking
organizations for the purposes of the RFA.\50\ In the period from 2021
through 2023, the FDIC received 5 bank-sponsored section 19
applications from small, FDIC-insured institutions, an average of 2 per
year. Additionally, the FDIC received 115 section 19 applications from
individuals during the same period, an average of about 38 per
year.\51\ To determine the maximum number of small, FDIC-insured
institutions that could be affected by the final 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, 40 (1.2 percent of) small, FDIC-insured institutions, on
average, annually, could be affected by the final 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 final rule is likely to be less
than 40.
---------------------------------------------------------------------------

\50\ FDIC Call Report, March 31, 2024.
\51\ FDIC Application Tracking System.
\52\ (40/3,259) * 100 = 1.23 percent.
---------------------------------------------------------------------------

As discussed in the SUPPLEMENTARY INFORMATION section, the final
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. Most of the amendments
were precipitated by the FHBA--which was effective immediately upon
passage--and the final rule aligns the FDIC's regulations with these
elements of the FHBA; therefore, most of the associated changes in the
final rule will have no direct effect on individuals or IDIs. Further,
since the FDIC estimates that a maximum of 40 small, FDIC-insured
institutions could be affected by the final rule, on average, annually,
any direct affects realized as a result of the final rule are likely to
be small and affect a relatively small number of entities.
In light of the foregoing, the FDIC certifies that the final rule
will not have a significant economic impact on a substantial number of
small entities.

C. Plain Language

Section 722 of the Gramm-Leach Bliley Act \53\ requires the Federal
banking agencies to use plain language in all proposed and final
rulemakings published in the Federal Register after January 1, 2000.
FDIC staff believes the final rule is presented in a simple and
straightforward manner. The FDIC invited comments regarding the use of
plain language in the proposed rule but did not receive any comments on
this topic.
---------------------------------------------------------------------------

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

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 Federal banking agency 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

[[Page 64362]]

benefits of such regulations. In addition, section 302(b) of 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 has determined that the final rule would
impose additional reporting, disclosure, or other new requirements on
IDIs, and is making this final rule effective in accordance with the
requirements of the RCDRIA.
---------------------------------------------------------------------------

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

E. Congressional Review Act

For purposes of the Congressional Review Act (5 U.S.C. 801 et
seq.), the OMB makes a determination as to whether a final rule
constitutes a ``major rule.'' If a rule is deemed a ``major rule'' by
the OMB, the Congressional Review Act generally provides that the rule
may not take effect until at least 60 days following its
publication.\56\ The Congressional Review Act defines a ``major rule''
as any rule that the Administrator of the Office of Information and
Regulatory Affairs of the OMB finds has resulted in or is likely to
result in--(1) an annual effect on the economy of $100 million or more;
(2) a major increase in costs or prices for consumers, individual
industries, Federal, State, or local government agencies or geographic
regions; or (3) significant adverse effects on competition, employment,
investment, productivity, innovation, or on the ability of United
States-based enterprises to compete with foreign-based enterprises in
domestic and export markets.\57\ The OMB has determined that the final
rule is not a major rule for purposes of the Congressional Review Act
and the FDIC will submit the final rule and other appropriate reports
to Congress and the Government Accountability Office for review.
---------------------------------------------------------------------------

\56\ See 5 U.S.C. 801.
\57\ See 5 U.S.C. 804(2).
---------------------------------------------------------------------------

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 amends 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 Federal Deposit Insurance 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 exemption.
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 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 (including persons who have had a consent
application approved).
(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 in order 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

[[Page 64363]]

or control over the management or affairs of an IDI. For example,
section 19 would apply to directors and officers of affiliates,
subsidiaries, or joint ventures of an IDI 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 also 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). Conversely,
an individual who works at a bank holding company or savings and loan
holding company who would like to participate in the affairs of an IDI
or be in a position to influence or control the management or affairs
of an IDI must file an application with the FDIC under this subpart.
(d) Section 19 specifically prohibits a person subject to its
provisions from owning or controlling, directly or indirectly, an IDI.
The terms control, ownership, and acting in concert under section 19
have the meaning given to those terms in subpart E of this part
(including the rebuttable presumptions stated in subpart E of this
part).
(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.
(2) Offenses committed by individuals 21 years 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 (as
indicated by the date on the court's sentencing order), 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) 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 requires an application.

[[Page 64364]]

(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 from the FDIC's Regional Offices or on the FDIC's
website.

Sec. 303.227 De minimis Exemption.

(a) In general. The prohibitions of 12 U.S.C. 1829(a) will not
apply, and an application will therefore not be required, where all of
the following de minimis criteria are met. (Paragraph (b)(4) of this
section contains separate exemption criteria from paragraphs (a)
through (b)(3) of this section, and an offense that qualifies for
exemption under paragraph (b)(4) of this section is excluded from
consideration in the criteria of paragraphs (a) through (b)(3) of this
section.)
(1) The individual has been convicted of, or has program entries
for, no more than two Covered Offenses, including those subject to
paragraphs (b)(1) through (3) 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 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.
(5) Each Covered Offense must not have been committed against an
IDI or insured credit union.
(b) Other types of offenses for which the de minimis exemption
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)(4) of this
section will be met if the convictions or program

[[Page 64365]]

entries were entered at least 18 months prior to the date an
application would otherwise be required. For this reduction in waiting
time to apply, the convictions or program entries must meet the other
de minimis criteria in paragraph (a) of this section.
(2) Convictions or program entries for insufficient funds checks.
The prohibitions of 12 U.S.C. 1829(a) will not apply, and an
application will therefore not be required, as to convictions or
program entries of record based on the writing of ``bad'' or
insufficient funds check(s) 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.
The prohibitions of 12 U.S.C. 1829(a) will not apply, and an
application will therefore not be required, as to convictions or
program entries based on the simple theft of goods, services, or
currency (or other monetary instrument) if the following conditions
apply:
(i) The value of the currency, goods, or services taken was $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 offense that is
considered exempt under this section; and
(iv) If there are two offenses--each of which, by itself, is
considered exempt 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.
(4) Convictions or program entries for using fake identification,
shoplifting, trespassing, fare evasion, or driving with an expired
license or tag. The prohibitions of 12 U.S.C. 1829(a) will not apply,
and an application will therefore not be required, as 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.
(c) 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 exemptions
set out in this section.

Sec. 303.228 How to file an application.

Forms and instructions should be obtained from the FDIC's Regional
Offices or on 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 or by an IDI or depository institution
holding company on behalf of an individual, or by both. 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 application filed by an individual
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 provided by the
Federal Bureau of Investigation (rap sheet); and
(2) Provide such record to the subject of the application to review
for accuracy. The FDIC will make reasonable efforts to communicate with
the subject of the application within 15 calendar days of receipt of
this record from the Federal Bureau of Investigation to inform the
individual that the FDIC will be providing them with a copy of the
report and to verify the individual's contact information. The FDIC
will make reasonable efforts to send the report to the individual
within 5 business days of successful verification of the individual's
contact information. If the individual believes that there are any
inaccuracies in the report, the FDIC will direct the individual to an
appropriate contact at the Federal Bureau of Investigation where the
individual can seek corrections to the report.
(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 provided by 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 person'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 participation 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 individual 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 a program entry, was
guilty of that crime will not be at issue in a proceeding under this
subpart or under 12 CFR part 308, subpart M.

[[Page 64366]]

(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 (or a request for written submissions in lieu of
a hearing) under 12 CFR part 308, subpart M, may be filed with the FDIC
Executive Secretary within 60 days after the denial. For institution-
sponsored applications, either the institution or the subject
individual (or both, as a consolidated request) may file such a written
request. A request 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 must be made in writing and may
not be made less than one year following the issuance of a decision
denying an application under section 19. If the original denial is
subject to a request for a hearing or written submissions in lieu of 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 will 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 the heading of subpart M to read as follows:

Subpart M--Procedures Applicable to the Request for and Conduct of
a Hearing (or the Request for Written Submissions in Lieu of a
Hearing) After Denial of an Application Under Section 19 of the
Federal Deposit Insurance Act

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

Sec. 308.156 Scope.

The rules and procedures set forth in this subpart will 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 will apply only after such application has been denied under 12
CFR part 303, subpart L.

0
6. Revise Sec. 308.157 to read as follows:

Sec. 308.157 Denial of applications.

If an application is denied under 12 CFR part 303, subpart L, then
the applicant may request a hearing (or request a written submission in
lieu of a hearing) under this subpart M. The applicant will have 60
days after the date of the denial to file a written request with the
Administrative Officer. In the request, the applicant must state the
relief desired, the grounds supporting the request for relief, and
provide any supporting evidence that the applicant believes is
responsive to the grounds for the denial.

0
7. Amend Sec. 308.158 by revising paragraphs (b) and (d) through (f)
to read as follows:

Sec. 308.158 Hearings and written submissions in lieu of a hearing.

* * * * *
(b) Burden of proof. The burden of going forward with a prima facie
case will be upon the FDIC. The ultimate burden of proof will 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 otherwise 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.

[[Page 64367]]

(e) Failure to request or appear at hearing. Failure to request a
hearing will constitute a waiver of the opportunity for a hearing.
Failure to appear at a hearing in person or through an authorized
representative will 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 will 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 will notify the applicant whether the individual will remain
prohibited under section 19. The notification will 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 July 30, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-17327 Filed 8-6-24; 8:45 am]
BILLING CODE 6714-01-P

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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.