The FDIC has issued guidance clarifying restrictions on service by persons convicted of certain criminal offenses on the board or in management of an insured depository institution. The guidance issued on August 8 in FDIC Financial Institution Letter No. 57-2011 (“FIL-57-2011”) clarifies the FDIC’s Statement of Policy under Section 19 of the Federal Deposit Insurance Act. Section 19 prohibits, without the prior written consent of the FDIC, a person convicted of a criminal offense involving dishonesty, breach of trust, money laundering, or drugs from participating in the affairs of an FDIC-insured depository institution. Under existing rules, an application to the FDIC under Section 19 is not required for a record of a conviction that has been completely expunged. The new guidance clarifies that a record of a conviction is considered to be completely expunged if the record is not accessible by any party, including law enforcement, even by court order. According to FIL-57-2011, a Section 19 application also is not required for offenses punishable by imprisonment for a term of one year or less and/or a fine of $1,000 or less, or if there has been one conviction for issuing a bad check or checks with an aggregate face value of $1,000 or less, and no insured financial institution or insured credit union was a payee on any of the checks.
Nutter Notes: On May 10, 2011, the FDIC issued a clarification of certain criteria in the FDIC’s Statement of Policy on Section 19 of the FDI Act, including complete expungement, de minimis factors, and de minimis factors for “bad checks.” Section 19 covers institution-affiliated parties, as defined by the FDI Act, and certain others who participate in the conduct of the affairs of an insured depository institution. For example, whether a person who is not an institution-affiliated party is covered depends on the person’s degree of influence or control over the management or affairs of an insured institution. The Statement of Policy clarifies that Section 19 would not apply to a person who is merely an employee of an insured institution’s holding company, but would apply to the holding company’s directors and officers to the extent that they have the power to define and direct the policies of the insured institution. Similarly, directors and officers of affiliates, subsidiaries or joint ventures of an insured institution or its holding company will be covered if they are in a position to influence or control the management or affairs of the insured institution, according to the Statement of Policy. The FDIC recommends that insured depository institutions consider the clarifications made by FIL-57-2011 of the Statement of Policy when reviewing the applicability of Section 19 to current and potential institution-affiliated parties. According to FIL-57-2011, there is no statute of limitations for offenses covered by Section 19.