25948 Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 

unique identifier’’ is changed to ‘‘a 

combination of numbers selected by the 

Secretary of State using a selection 

system or method approved by the 

Secretary of Agriculture.’’ The change to 

the interim rule meets the express 

statutory requirement in section 

1324(c)(2)(C) of the amended Food 

Security Act of 1985 that an approved 

unique identifier be numerically 

organized on master lists. The definition 

in the interim rule would have 

permitted, contrary to the statutory text, 

an identifier that may not have been 

able to be numerically organized in the 

master list. 

This final rule also affirms the 

information contained in the interim 

rule concerning Executive Order 12372 

and 12988, and the Paperwork 

Reduction Act. 

Further, for this action, the Office of 

Management and Budget has waived its 

review under Executive Order 12866. 

List of Subjects in 9 CFR Part 205 

Agricultural commodities, Archives 

and records, Intergovernmental 

relations, Reporting and recordkeeping 

requirements. 

■ Accordingly, the interim rule that 

amended 9 CFR part 205 and that was 

published at 71 FR 56338 on September 

27, 2006, is adopted with the following 

change: 

PART 205—CLEAR TITLE 

PROTECTION FOR PURCHASES OF 

FARM PRODUCTS 

■ 1. Amend § 205.1 by revising the 

definition of ‘‘approved unique 

identifier’’ to read as follows: 

§ 205.1 Definitions 

* * * * * 

Approved Unique Identifier means a 

combination of numbers selected by the 

Secretary of State using a selection 

system or method approved by the 

Secretary of Agriculture. 

Alan Christian, 

Acting Administrator, Grain Inspection, 

Packers and Stockyards Administration. 

[FR Doc. E7–8794 Filed 5–7–07; 8:45 am] 

BILLING CODE 3410–KD–P 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

12 CFR Parts 509 and 585 

[OTS–2007–0008] 

RIN 1550–AC14 

Prohibited Service at Savings and 

Loan Holding Companies 

AGENCIES: Office of Thrift Supervision 

(OTS), Treasury. 

ACTION: Interim final rule with request 

for comment. 

SUMMARY: OTS is adopting an interim 

final rule implementing section 710(a) 

of the Financial Services Regulatory 

Relief Act of 2006, which added a new 

section 19(e) to the Federal Deposit 

Insurance Act (FDIA). Section 19(e) of 

the FDIA prohibits any person who has 

been convicted of any criminal offense 

involving dishonesty or a breach of 

trust, or money laundering or has agreed 

to enter into a pretrial diversion or 

similar program in connection with a 

prosecution for such an offense from 

holding certain positions with respect to 

a savings and loan holding company 

(SLHC). The interim final rule describes 

the actions that are prohibited under the 

new statute and describes procedures 

for applying for an OTS order granting 

a case-by-case exemption. The rule also 

provides two regulatory exemptions: An 

exemption for certain SLHC employees 

whose activities and responsibilities are 

limited solely to agriculture, forestry, 

retail merchandising, manufacturing, or 

public utilities operations, and a 

temporary exemption for certain 

persons who held positions with respect 

to a SLHC as of the date of enactment 

of section 19(e) of the FDIA. 

DATES: The interim final rule is effective 

on May 8, 2007. Comments on the rule 

must be received by July 9, 2007. 

ADDRESSES: You may submit comments, 

identified by OTS–2007–0008, by any of 

the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov, select 

‘‘Office of Thrift Supervision’’ from the 

agency drop-down menu, then click 

submit. Select Docket ID ‘‘OTS–2007–

0008’’ to submit or view public 

comments and to view supporting and 

related materials for this notice of 

proposed rulemaking. The ‘‘User Tips’’

link at the top of the page provides 

information on using Regulations.gov, 

including instructions for submitting or 

viewing public comments, viewing 

other supporting and related materials, 

and viewing the docket after the close 

of the comment period. 

• Mail: Regulation Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, Attention: OTS–

2007–0008. 

• Hand Delivery/Courier: Guard’s 

Desk, East Lobby Entrance, 1700 G 

Street, NW., from 9 a.m. to 4 p.m. on 

business days, Attention: Regulation 

Comments, Chief Counsel’s Office, 

Attention: OTS–2007–0008. 

Instructions: All submissions received 

must include the agency name and 

docket number for this rulemaking. All 

comments received will be entered into 

the docket and posted on 

Regulations.gov without change, 

including any personal information 

provided. Comments, including 

attachments and other supporting 

materials received are part of the public 

record and subject to public disclosure. 

Do not enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

Viewing Comments Electronically: Go 

to http://www.regulations.gov, select 

‘‘Office of Thrift Supervision’’ from the 

agency drop-down menu, then click 

‘‘Submit.’’ Select Docket ID ‘‘OTS–

2007–0008’’ to view public comments 

for this notice of proposed rulemaking. 

Viewing Comments On-Site: You may 

inspect comments at the Public Reading 

Room, 1700 G Street, NW., by 

appointment. To make an appointment 

for access, call (202) 906–5922, send an 

e-mail to public.info@ots.treas.gov, or 

send a facsimile transmission to (202) 

906–6518. (Prior notice identifying the 

materials you will be requesting will 

assist us in serving you.) We schedule 

appointments on business days between 

10 a.m. and 4 p.m. In most cases, 

appointments will be available the next 

business day following the date we 

receive a request. 

FOR FURTHER INFORMATION CONTACT: 

Donna Deale, Director, Holding 

Companies and Affiliates, Supervision 

Policy, (202) 906–7488, or Karen 

Osterloh, Special Counsel, Regulations 

and Legislation, (202) 906–6639, Office 

of Thrift Supervision, 1700 G Street, 

NW., Washington, DC 20552. 

SUPPLEMENTARY INFORMATION:

I. Background 

Under section 19(a) of the FDIA, a 

person who has been convicted of any 

criminal offense involving dishonesty or 

a breach of trust, or money laundering 

or has agreed to enter into a pretrial 

diversion or similar program in 

connection with a prosecution for such 

an offense may not: 


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Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 25949 

1 12 U.S.C. 1829(a)(1). The Federal Deposit 

Insurance Corporation (FDIC) may give prior 

written consent to actions that would otherwise 

violate the prohibition. The statute imposes a tenyear ban against the FDIC’s consent for a person 

convicted of certain crimes enumerated in Title 18 

of the United States Code, absent a motion by FDIC 

and approval by the sentencing court. 

2A person is defined to include only individuals, 

but does not include a corporation, firm or other 

business entity. See Section A. of FDIC’s SOP, 63 

FR at 66184. 

3 Id. 

4 Id. 

5Accordingly, section 585.20 of the interim rule: 

(1) defines SLHC by cross-reference to OTS existing 

regulations at 12 CFR 583.20, and (2) excludes a 

subsidiary of a SLHC that is not itself a SLHC. 

• Become, or continue as, an 

institution-affiliated party with respect 

to an insured depository institution; 

• Own or control, directly or 

indirectly, any insured depository 

institution; or 

• Otherwise participate, directly or 

indirectly, in the conduct of the affairs 

of any insured depository institution.1

Under section 19(a)(1)(B) of the FDIA, 

an insured depository institution may 

not permit any person to engage in the 

prohibited conduct or continue any 

prohibited relationship. Section 19(b) of 

the FDIA states that whoever knowingly 

violates the statute shall be fined not 

more than $1,000,000 for each day the 

prohibition is violated or imprisoned for 

not more than 5 years or both. 

Section 710(a) of the Financial 

Services Regulatory Relief Act of 2006, 

Pub. L. 109–251, effective October 13, 

2006, amended section 19 of the FDIA 

by adding a new paragraph (e). New 

section 19(e)(1) applies sections 19(a) 

and (b) of the FDIA ‘‘to any savings and 

loan holding company as if such savings 

and loan holding company were an 

insured depository institution * * *.’’

Section 19(e)(2) of the FDIA authorizes 

the Director of OTS to provide 

exemptions from the prohibitions, by 

regulation or order, if the exemption is 

consistent with the purposes of new 

paragraph (e). 

OTS is amending its regulations to 

add a new part 585 to implement these 

new restrictions. The OTS interim final 

rule incorporates interpretations 

contained in the FDIC’s Statement of 

Policy issued under section 19(a) of the 

FDIA (63 FR 66177) (Dec. 1, 1998) 

(FDIC’s SOP) and in the FDIC’s rules at 

12 CFR part 303, subpart L—Section 19 

of the FDI Act (Consent to Service of 

Persons Convicted of Certain Criminal 

Offenses) and 12 CFR part 308, subpart 

M—Procedures and Standards 

Applicable to an Application pursuant 

to Section 19 of the FDIA. The 

provisions of the new interim final rule 

are summarized below. 

II. Description of the Interim Final Rule 

What does this part do? (§ 585.10) 

Section 585.10 states that new part 

585 implements the prohibitions under 

section 19(e)(1) of the FDIA. Section 

585.10 also states that the new rule 

implements section 19(e)(2) of the FDIA, 

which permits the Director to provide 

exemptions, by regulation or order, from 

the application of the prohibition. The 

new part provides an exemption for 

SLHC employees whose activities and 

responsibilities are limited solely to 

agriculture, forestry, retail 

merchandising, manufacturing, or 

public utilities operations, and a 

temporary exemption for certain 

persons who held positions with respect 

to a SLHC as of the date of enactment 

of section 19(e) of the FDIA. The interim 

final rule also describes procedures for 

applying for an OTS order granting an 

exemption on a case-by-case basis. 

What definitions apply to this part? 

(§ 585.20) 

Section 585.20 lists definitions used 

in the new part. These definitions are 

discussed throughout this preamble in 

connection with the relevant 

substantive provision. 

Prohibition 

What actions are prohibited? (§ 585.30) 

Paragraph (a) of this section reiterates 

the prohibitions that apply to persons 

under section 19(e) of the FDIA.2

Specifically, paragraph (a) states that if 

a person was convicted of a criminal 

offense described below, or agreed to 

enter into a pre-trial diversion or similar 

program in connection with a 

prosecution for such a criminal offense, 

he or she may not hold certain positions 

with any SLHC. 

First, the person may not become, or 

continue as, an institution-affiliated 

party with respect to any SLHC. For the 

purposes of the new part, the term 

‘‘institution-affiliated party’’ is defined 

in 12 U.S.C. 1813(u), except that this 

definition is applied by substituting 

SLHC for insured depository institution 

each place that it appears. Under this 

definition, an ‘‘institution-affiliated 

party’’ of a SLHC includes: 

• Any director, officer, employee, or 

controlling stockholder (other than a 

bank holding company) of, or agent for, 

a SLHC. This category would also 

include persons who are deemed to be 

de facto employees of a SLHC, based on 

applicable standards of employment 

law.3

• Any person who has filed or is 

required to file a change in control 

notice with the appropriate Federal 

banking agency under 12 U.S.C. 

1817(j)—the Change in Bank Control 

Act. 

• Any shareholder, consultant, joint 

venture partner, and any other person 

determined by [OTS] (by regulation or 

case-by-case) who participates in the 

conduct of the affairs of the SLHC. 

Participation in the conduct of the 

affairs of the SLHC is discussed below. 

• Any independent contractor 

(including any attorney, appraiser, or 

accountant) who knowingly or 

recklessly participates in any violation 

of any law or regulation, any breach of 

fiduciary duty, or any unsafe or 

unsound practice, which caused or is 

likely to cause more than a minimal 

financial loss to, or a significant adverse 

effect on, the SLHC. 

Second, the person may not own or 

control, directly or indirectly, a SLHC. 

For the purposes of defining ‘‘control’’

and ownership under section 19(a) of 

the FDIA, FDIC’s SOP uses the 

definition of ‘‘control’’ in the Change in 

Bank Control Act (12 U.S.C. 

1817(j)(8)(B)). The OTS rule 

implementing the Change in Bank 

Control Act and the Savings and Loan 

Holding Company Act is at 12 CFR part 

574. The rule provides that a person 

will own or control a SLHC if he or she 

owns or controls that company under 12 

CFR part 574. 

Finally, the person may not otherwise 

participate, directly or indirectly, in the 

conduct of the affairs of a SLHC. Given 

the changes in banking, including 

financial modernization and the rapid 

pace of technology, a regulatory listing 

of activities that constitute participation 

is neither practical nor advisable. 

Accordingly, like FDIC’s SOP, the 

interim final rule does not define 

precisely what activities constitute 

‘‘participation.’’ Rather, agency and 

court decisions will provide the guide 

as to what standards will be applied. As 

a general proposition, however, 

participation will depend upon the 

degree of influence or control over the 

management or affairs of the SLHC. 

Those who exercise major policymaking 

functions at a SLHC would fall within 

this category.4

OTS notes that the statutory 

prohibitions do not directly apply to a 

person who is an institution-affiliated 

party with respect to a non-depository 

institution subsidiary of a SLHC, owns 

or controls such a subsidiary, or 

participates in the affairs of such a 

subsidiary.5 However, it is possible that 

a person occupying such a position with 

a subsidiary could be subject to the 


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25950 Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 

6Compare Section A. of FDIC’s SOP, 63 FR at 

66184 (‘‘Directors and officers of * * * subsidiaries 

of an insured depository institution will be covered 

if they are in a position to influence or control the 

management or affairs of the insured institution.’’) 

7See Introduction to FDIC’s SOP, 63 FR at 66184. 

8See Section B.(1) of FDIC’s SOP, 63 FR at 66184. 

9See Section B.(2) of FDIC’s SOP, 63 FR at 

66184–85. 

10See Section B.(3) of FDIC’s SOP, 63 FR at 

66185. 

11 Id. 

12See Sections B.(4) & B.(5) of FDIC’s SOP, 63 FR 

at 66185. 

prohibitions if the person participates in 

the conduct of the affairs of the SLHC. 

For example, a director or officer of a 

subsidiary will be covered if he or she 

is in a position to influence or control 

the management or affairs of the SLHC.6

Section 585.30(b) restates the 

statutory prohibition applicable to 

SLHCs. Specifically, this section 

provides that a SLHC may not permit 

any person described above to engage in 

any conduct or to continue any 

prohibited relationship. OTS believes 

that section 19(e) imposes a duty upon 

the SLHC to make a reasonable inquiry 

regarding a person’s history, which 

consists of taking steps appropriate 

under the circumstances, consistent 

with applicable law, to avoid hiring or 

permitting participation in its affairs by 

a person who has a conviction or 

program entry for a covered offense. At 

a minimum, each SLHC should 

establish a screening process that 

provides information concerning any 

convictions or program entry pertaining 

to a job applicant. This would include, 

for example, the completion of a written 

employment application requiring a 

listing of all convictions and program 

entries.7

What convictions or agreements to enter 

into pre-trial diversions or similar 

programs are covered by this part? 

(§ 585.40) 

Section 585.40 describes the types of 

convictions and agreements that are 

covered by the part. The interim final 

rule states that part 585 applies to: 

• Any conviction of a criminal 

offense (i.e., a felony or misdemeanor) 

involving dishonesty, breach of trust, or 

money laundering. Convictions do not 

cover arrests, pending cases not brought 

to trial, acquittals, convictions reversed 

on appeal, pardoned convictions, or 

expunged convictions.8

• Any agreement to enter into a 

pretrial diversion or similar program in 

connection with a prosecution for a 

criminal offense involving dishonesty, 

breach of trust or money laundering. A 

pretrial diversion or similar program is 

a program involving a suspension or 

eventual dismissal of charges or of a 

criminal prosecution based upon the 

person’s agreement for treatment, 

rehabilitation, restitution, or other noncriminal or non-punitive alternative.9

A determination whether a criminal 

offense involves dishonesty or breach of 

trust will be based on the statutory 

elements of the crime, rather than the 

specific factual circumstances 

surrounding a crime.10 For SLHCs 

attempting to comply with the 

prohibitions, the analysis of the factual 

background behind crimes could prove 

to be an impossible task since records 

and factual background will not always 

be available. 

‘‘Dishonesty’’ means directly or 

indirectly to cheat or defraud, to cheat 

or defraud for monetary gain or its 

equivalent, or to wrongfully take 

property belonging to another in 

violation of any criminal statute. It 

includes acts involving a want of 

integrity, lack of probity, or a 

disposition to distort, cheat, or act 

deceitfully or fraudulently, and may 

include crimes which federal, state or 

local laws define as dishonest. A 

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

use, misappropriation, or omission with 

respect to any property or fund which 

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. All 

convictions for offenses concerning the 

illegal manufacture, sale, distribution of 

or trafficking in controlled substances, 

as defined under Federal law, require an 

application unless the person is exempt 

under § 585.100.11

As noted above, a conviction of a 

criminal offense excludes pardoned and 

expunged convictions. OTS solicits 

comments on whether states and other 

jurisdictions have any analogous 

procedures for expunging any record 

regarding participation in a pretrial 

diversion and similar program and 

whether it is feasible to recognize these 

procedures in the final rule. 

What adjudications and offenses are not 

covered by this part? (§ 585.50) 

The interim final rule excludes 

certain types of adjudications and 

criminal offenses from coverage. 

Specifically, the part does not cover any 

adjudication by a court against a person 

as a youthful offender or as a juvenile 

delinquent. Such convictions are 

generally not considered to be 

convictions for criminal offenses. 

Moreover, it is questionable whether 

SLHCs could obtain records regarding 

such adjudications. 

The rule also does not cover certain 

de minimis criminal offenses. OTS 

believes that the exempted offenses are 

of such a minimal nature and of such 

low risk that the affected person may 

hold any position with a SLHC. This 

approach has the advantage of 

addressing a large number of persons 

who have agreed to pretrial diversion 

since in most cases, the crimes involved 

in such programs are not serious ones 

that involve significant risk. Under the 

interim final rule, a criminal offense is 

de minimis if six criteria are met. First, 

the person may have only one 

conviction or pretrial diversion. Second, 

the offense must have been punishable 

by imprisonment for a term of less than 

one year, a fine of less than $1,000, or 

both, and the person must not have 

served time in jail for the offense. Third, 

the conviction or program must be 

entered at least five years before the date 

the person first held a position 

described in § 585.30(a) above. Fourth, 

the offense may not involve an insured 

depository institution, an insured credit 

union, or other banking organization 

(including a SLHC, bank holding 

company, or financial holding 

company). Fifth, the person must 

disclose the conviction or pretrial 

diversion or similar program to all 

insured depository institutions, insured 

credit unions, and other banking 

organizations the affairs of which he or 

she participates. Finally, the person 

must be covered by a fidelity bond to 

the same extent as others in similar 

positions with the SLHC.12

Like the FDIC policy statement, the 

OTS interim final rule states that a de 

minimis criminal offense must be 

punishable by imprisonment for a term 

of less than one year, a fine of less than 

$1,000, or both. OTS specifically 

requests comment on two alternatives to 

this standard. First, OTS is considering 

applying a standard that more closely 

tracks the way state and local 

jurisdictions distinguish misdemeanor 

and felony offenses. OTS specifically 

requests suggestions on how this might 

be accomplished. Alternatively, OTS 

may define a de minimis criminal 

offense by reference to the prison 

sentence or fine actually imposed on an 

individual in a particular case. For pretrial diversions, this criterion could be 

based on the suspended sentence or, 

where there is no suspended sentence, 

on the maximum punishment under the 

statute. OTS specifically solicits 

comments on whether this alternative is 

appropriate and, if so, what prison 

sentence or fine should constitute a de 

minimis offense. 


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13See section D. of FDIC’s SOP, 63 FR at 66185. 14OTS believes that all directors, and those 

officers of a SLHC who meet the definition of 

‘‘executive officer’’ of the SLHC under 12 CFR 

215.2(e)(1)(Regulation O), are involved in major 

policymaking. Individuals that meet the definition 

of ‘‘officer’’ under the Securities and Exchange 

Commission’s rules at 17 CFR 240.16a–1(f) are also 

involved in major policymaking. 17 CFR 240.16a–

1(f) states: ‘‘The term ‘‘officer’’ shall mean an 

issuer’s president, principal financial officer, 

principal accounting officer (or, if there is no such 

accounting officer, the controller), any vicepresident of the issuer in charge of a principal 

business unit, division or function (such as sales, 

administration or finance), any other officer who 

performs a policy-making function, or any other 

person who performs similar policy-making 

functions for the issuer. Officers of the issuer’s 

parent(s) or subsidiaries shall be deemed officers of 

the issuer if they perform such policy-making 

functions for the issuer * * *. For these purposes, 

a ’policy-making function’ is not intended to 

include policy-making functions that are not 

significant.’’

15OTS examiners will review the list of 

policymaking positions during regularly scheduled 

SLHC examinations. Examiners may request a list 

of other positions or job classifications within the 

organization to reasonably conclude that such 

positions would not normally entail policymaking 

functions. Examiners will also review the SLHC’s 

policies, procedures, and practices in complying 

with this section. During this review, OTS 

examiners will consider the SLHC’s methods for 

identifying and maintaining the list of 

policymaking positions, as well as review a sample 

of employees occupying policymaking positions to 

verify that the SLHC obtains appropriate 

background checks. 

Exemptions 

Who is exempt from the prohibition 

under this part? (§ 585.100) 

As noted above, section 19(e)(2) of the 

FDIA authorizes the Director of OTS to 

provide exemptions from the 

prohibitions, by regulation or order, if 

the exemption is consistent with the 

purposes of the prohibition. The 

primary purpose of section 19 of the 

FDIA, as originally enacted, appears to 

be to lower insured depository 

institutions’ risk of exposure to theft, 

embezzlement, and other misconduct by 

the institution’s employees, contractors, 

and others involved in the institution’s 

operations and affairs. Accordingly, 

when reviewing applications for relief 

from section 19(a) of the FDIA, an 

essential criterion assessed by FDIC is 

whether the affiliation, control, or 

participation of a person in the conduct 

of the affairs of a depository institution 

will threaten the safety and soundness 

of any insured depository institution; 

will threaten the interests of the 

depositors of any such institution; or 

will threaten to impair the public 

confidence in any such institution.13

OTS believes that it is appropriate to 

consider these impacts when it decides 

whether to issue an exemption. 

Additionally, while the focus of the 

FDIA is on the impact to the depository 

institution and the deposit insurance 

fund, OTS believes that the purposes of 

new section 19(e) of the FDIA also 

require consideration of an exempted 

person’s ability to impact the SLHC, 

particularly with respect to major 

policymaking.14

In the months following the 

enactment of section 19(e) of the FDIA, 

OTS received several inquiries from 

SLHCs that conduct forestry, 

manufacturing, or retail merchandising 

operations at the holding company 

level. These SLHCs employ thousands 

of employees that engage solely in these 

operations. The SLHCs report that the 

vast majority of these employees have 

no policymaking functions, do not 

otherwise participate in the conduct of 

the affairs of the SLHC or the subsidiary 

insured depository institution, and have 

no working relationship with the 

subsidiary insured depository 

institution. These SLHCs argue that 

applying section 19(e) of the FDIA to 

these employees would require the 

SLHCs to implement unnecessary and 

costly background checks and undertake 

unnecessary personnel actions. They 

also indicate that the application of 

section 19(e) of the FDIA would place 

them at a competitive disadvantage with 

respect to others in their industry that 

do not own an insured depository 

institution. As a result, several SLHCs 

requested exemptions from the 

prohibitions in section 19(e) of the FDIA 

for employees in their forestry, 

manufacturing, and retail 

merchandising operations. 

OTS believes that it is unlikely that 

employees whose responsibilities and 

activities are limited solely to forestry, 

manufacturing or retail merchandising 

operations at the SLHC level would 

constitute a threat to safety and 

soundness of a subsidiary insured 

depository institution, would threaten 

the interests of the institution’s 

depositors, or would threaten to impair 

the public confidence in the institution. 

While employees at the highest levels 

may be in a position to impact the major 

policymaking functions of the SLHC, 

the exemption granted in the interim 

final rule imposes certain conditions 

designed to ensure that the SLHC would 

not be materially impacted (see 

discussion of conditions below). Subject 

to these conditions, OTS finds that an 

exemption for SLHC employees whose 

responsibilities and activities are 

limited solely to forestry, 

manufacturing, and retail 

merchandising operations is consistent 

with the purposes of section 19(e) of the 

FDIA. 

In addition to forestry, manufacturing, 

and retail merchandising employees, 

OTS reviewed existing SLHC operations 

to determine whether a broader 

exemption might be appropriate and 

necessary. Based on this review, OTS 

has concluded that its regulated SLHCs 

also engage in agricultural operations or 

provide public utilities at the SLHC 

level and has decided to extend the 

exemption to SLHC employees whose 

activities and responsibilities are 

limited solely to such operations. 

Employees engaged solely in such 

activities at the SLHC level are similar 

to forestry, manufacturing and retail 

merchandising employees with respect 

to their ability to threaten the safety and 

soundness of the institution, threaten 

the interests of depositors or impair the 

public confidence of an institution. 

Moreover, the exemption granted in the 

interim final rule imposes certain 

conditions designed to ensure that the 

SLHC would not be materially 

impacted. Subject to these conditions, 

OTS believes that an exemption for 

these SLHC employees is also consistent 

with the purposes of section 19(e) of the 

FDIA. 

To qualify for the exemption, the 

employee’s responsibilities and 

activities must be limited solely to 

agriculture, forestry, retail 

merchandising, manufacturing, or 

public utilities operations. The 

exemption would apply to employees 

who are directly engaged in these 

activities and to employees who provide 

administrative services in support of 

these activities. Because the employee’s 

responsibilities and activities must be 

limited solely to the listed operations, 

however, the exemption may not 

exempt all support personnel. For 

example, if a SLHC’s human resources 

division also serves divisions or SLHC 

subsidiaries that conduct operations 

beyond those listed in the exemption, 

employees of that division would not 

fall within the exemption, unless it can 

be demonstrated that a employee’s 

particular responsibilities and activities 

are limited solely to the listed 

operations. 

As noted above, the interim final rule 

includes conditions designed to ensure 

that an exempted person does not have 

the ability to impact the SLHC, 

particularly with regard to major 

policymaking functions. Specifically, 

the rule requires a SLHC to maintain a 

list of all policymaking positions and 

review this list annually. The 

employee’s position may not appear on 

the SLHC’s list, and the employee may 

not, in fact, exercise any policymaking 

function with respect to the SLHC.15

Finally, the employee may not be an 

institution-affiliated party of the SLHC 

other than by virtue of the exempted 


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25952 Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 

16As a result of these conditions, an officer of a 

SLHC, for example, would not be within the scope 

of the exemption. 

17See FDIC rules at 12 CFR 308.158(b). 

18See FDIC rules at 12 CFR 303.222. 

19 In the event of a merger or similar transaction, 

the person or SLHC would not have to seek a new 

exemption if the SLHC is the resulting entity in the 

transaction and the responsibilities of the position 

do not materially change in connection with the 

transaction. 

20See OTS’s discussion of § 585.100 above. 

21See FDIC rules at 12 CFR 308.157 and Section 

D. of FDIC’ SOP, 63 FR at 66185. 

employment, may not own or control, 

directly or indirectly, the SLHC and 

may not participate, directly or 

indirectly, in the conduct of the affairs 

of the SLHC.16

OTS requests comments on all aspects 

of this exemption. For example: Are the 

conditions imposed on this exemption 

appropriate? Are additional conditions 

needed to protect the interests described 

above? Are there other facts or 

circumstances that might warrant 

additional exemptions for classes of 

persons or SLHCs? 

OTS may modify this exemption 

based on the comments received on the 

interim final rule. If OTS narrows the 

scope of this exemption in the final rule, 

it will provide a delayed effective date 

for the modification to permit persons 

and SLHCs to comply with the changes. 

Until that delayed effective date, any 

person or SLHC may rely on the 

exemption contained in § 585.100(a). 

In addition to this exemption for 

employees, OTS is temporarily 

exempting any prohibited person who 

was an institution-affiliated party with 

respect to a SLHC, who owned or 

controlled, directly or indirectly a 

SLHC, or who otherwise participated 

directly or indirectly in the conduct of 

the affairs of the SLHC on October 13, 

2006. The exemption would permit the 

person to continue to hold the position 

with the SLHC for a limited time. The 

exemption expires 120 days after the 

effective date of this interim final rule, 

unless the SLHC or the person has filed 

an application seeking a case-by-case 

exemption for the person under 

§ 585.110 within the 120-day time 

period. If the SLHC or the person files 

such an application, the exemption 

expires upon OTS’s disposition of the 

application. 

OTS believes that this exemption is 

necessary to ensure that the new statute 

does not needlessly disrupt SLHC 

operations by requiring the immediate 

termination of existing relationships. 

OTS has designed this exemption to 

ensure that SLHCs have sufficient time 

to determine which persons have 

convictions or pre-trial diversions 

involving the described criminal 

offenses, and to provide a meaningful 

opportunity for the SLHC or the 

prohibited person to demonstrate that 

the person’s continued relationship 

with the SLHC is consistent with the 

purposes of the statute. Accordingly, 

OTS has concluded that this exemption 

is consistent with the purposes of 

section 19(e) of the FDIA. 

How do I apply for a case-by-case 

exemption? (§ 585.110) 

In addition to the regulatory 

exemption at § 585.100, the interim final 

rule sets out an application process for 

a case-by-case exemption from the 

prohibitions. To obtain a case-by-case 

exemption, a person or SLHC must file 

an application with OTS. An applicant 

may not file an application less than one 

year after the OTS’s denial of the same 

exemption.17 Additionally, an applicant 

may seek an exemption only with 

respect to a designated position (or 

designated positions) with a named 

SLHC. Thus, if OTS has approved an 

exemption for a person for a designated 

position with respect to a named SLHC, 

another exemption must be obtained 

before the person may hold a different 

position with the named SLHC or 

become an institution-affiliated party of 

another SLHC, own or control directly 

or indirectly another SLHC, or 

participate in the conduct of the affairs 

of another SLHC.18 For these purposes, 

an exemption granted for a position 

with respect to a named SLHC does not 

exempt a position with respect to 

another SLHC that is within the same 

corporate family (e.g., a SLHC that is a 

parent or subsidiary of the named 

SLHC).19

OTS will process the application 

under the standard treatment in 12 CFR 

part 516, subpart A, and will review the 

application under the procedures in 12 

CFR part 516, subpart E (excluding 12 

CFR 516.270 and 516.280). The 

prohibitions in section 19(e) of the 

FDIA, however, will continue to apply 

pending OTS action on an application 

unless the person qualifies for the 

temporary exemption at § 585.100(b). 

What factors will OTS consider in 

reviewing my exemption application? 

(§ 585.120) 

An application may cover either a 

specified position with a named SLHC 

or a person to serve at a specified 

position with a named SLHC. In 

determining whether to approve an 

exemption application, OTS will first 

consider the extent to which the 

position that is the subject of the 

application would permit a person to: 

• Participate in the major 

policymaking functions of the SLHC; or 

• Threaten the safety and soundness 

of any insured depository institution 

that is controlled by the SLHC, the 

interests of its depositors, or the public 

confidence in the insured depository 

institution.20

OTS will also consider whether the 

applicant has demonstrated the person’s 

fitness to hold the described position. 

Some applications may be approved 

without an extensive review of a 

person’s fitness, because the position 

will not permit a person to participate 

in major policymaking functions or to 

threaten the safety and soundness of a 

depository institution, the interests of 

its depositors or public confidence in 

the institution. Persons who will occupy 

clerical, maintenance, service or purely 

administrative positions, for example, 

will generally fall into this category. 

In making the determinations under 

§ 585.120, OTS will consider all 

relevant factors including the position, 

the amount of influence and control a 

person will be able to exercise over the 

affairs and operations of the SLHC and 

the insured depository institution, the 

ability of the SLHC management to 

supervise and control the activities of 

the person, and, where applicable, the 

level of ownership that a person has in 

the SLHC. In addition, OTS will 

consider the specific nature and 

circumstances of the criminal offense 

and any evidence of rehabilitation. The 

question of whether a person was guilty 

of the underlying offense, however, is 

not a relevant consideration.21

How will I know if my application is 

approved? (§ 585.130) 

OTS will issue an order approving or 

denying an application. An approval 

order will include a summary of the 

relevant factors that OTS considered in 

approving the application, and will 

require fidelity bond coverage for a 

position to the same extent as similar 

positions with the SLHC. The approval 

order may also include such other 

conditions as may be appropriate. 

A denial order will include a 

summary of the relevant factors that 

OTS considered in the denial. The 

denial order will also include a 

statement indicating that the applicant 

may file a written request demonstrating 

good cause for a hearing on the denial, 

and that the applicant must file this 

request within 20 days after the date of 

issuance of the denial order. 

What procedures govern a hearing on 

my application? (§ 585.140) 

OTS will review a hearing request to 

determine if the applicant has 


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22 5 U.S.C. 553(b)(B). 

23See Section A. of FDIC’s SOP, 63 FR at 66184 

(Section 19 would apply to [a holding company’s] 

directors and officers to the extent that they have 

the power to define and direct the policies of the 

insured institution.’’) 

24 5 U.S.C. 553. 

25 5 U.S.C. 553(d). 

26 12 U.S.C. 4802. 

27 5 U.S.C. 603. 

demonstrated good cause for a hearing 

on the application. Within 30 days after 

the filing of a request, OTS will notify 

the applicant in writing of its decision 

to grant or deny the hearing request. If 

OTS grants the request, it will order a 

hearing to be commenced within 60 

days of the issuance of the notification. 

Parties may request a later hearing date. 

OTS rules at 12 CFR part 509 contain 

the rules of practice and procedure in 

adjudicatory proceedings. The interim 

final rule adds a new subpart D to part 

509 to govern the procedures for 

hearings on a denial of an application 

for a case-by-case exemption under 

section 19(e) of the FDIA. The interim 

final rule incorporates many of the rules 

of practice and procedure applicable in 

adjudicatory proceedings at 12 CFR part 

509. In addition, it specifically 

addresses such matters as: The use of 

written submissions in lieu of hearing, 

the location and timing of the hearing, 

the designation of a presiding officer, a 

prohibition on discovery, the issuance 

of subpoenas, the taking of testimony 

and depositions, the administration of 

oaths, transcripts, the supplementation 

of the record, recommendations by the 

presiding officer, certification of the 

record, burden of proof, and the 

decision by the Director. 

III. Regulatory Findings 

A. Advance Notice and Public Comment 

The Administrative Procedure Act 

(APA) authorizes agencies to waive 

notice and comment procedures on a 

rule when the agency ‘‘for good cause 

finds * * * that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest.’’ 22 OTS believes the rule meets 

the APA standard and that it may issue 

this rule as a final rule without advance 

notice and comment. 

Section 19(e) became effective on 

October 13, 2006, and imposes severe 

penalties for violations. Under this 

statute, those who knowingly violate 

section 19(e) are now subject to fines of 

not more than $1 million for each day 

the prohibition is violated, 

imprisonment for not more than 5 years, 

or both. OTS believes that SLHCs and 

others must be given timely guidance to 

permit them to conform their behavior 

and avoid the severe penalties 

prescribed by the statute. Accordingly, 

to the extent that the interim final rule 

interprets the prohibitions in section 

19(e) of the FDIA, OTS finds that any 

delay in the issuance of the interim final 

rule is impractical and contrary to the 

public interest. OTS also finds that prior 

notice and comment on its 

interpretation of the section 19(e) 

prohibitions is unnecessary. OTS 

closely conformed its interpretations of 

section 19(e) to the interpretations 

contained in FDIC’s SOP, which was 

previously subject to notice and public 

comment and has been in effect since 

1998. SLHCs should be familiar with the 

concepts in FDIC’s SOP since it applies 

to certain individuals who hold 

positions with SLHCs.23

As noted above, the interim final rule 

also contains a regulatory exemption for 

SLHC employees if their responsibilities 

and activities are limited solely to 

agriculture, forestry, retail 

merchandising, manufacturing, or 

public utilities operations. As discussed 

more fully in this preamble, OTS has 

concluded that the application of the 

section 19 prohibition to these 

employees will not serve the purposes 

of the statute. Moreover, any delay in 

the issuance of this exemption for notice 

and comment procedures would require 

SLHCs to implement unnecessary and 

costly background checks and to 

undertake unnecessary personnel 

actions to terminate or transfer 

employees. Accordingly, OTS finds that 

notice and public comment on this 

aspect of the rule is also unnecessary 

and contrary to the public interest. 

Similarly, the interim final rule 

includes a temporary exemption for 

certain persons who held positions with 

respect to a SLHC as of the date of 

enactment of section 19(e) of the FDIA. 

This exemption was designed to ensure 

that SLHC operations are not needlessly 

disrupted by requiring the immediate 

termination of existing relationships. 

Accordingly, OTS also finds that notice 

and public comment on this exemption 

is also unnecessary and contrary to the 

public interest. 

Finally, the interim final rule 

prescribes application and hearing 

procedures for exemption requests. This 

portion of the interim final rule is an 

agency rule of procedure and practice, 

which is exempt from notice and 

comment procedures.24 In addition, this 

portion of the interim final rule closely 

follows the related FDIC rules and the 

interpretations contained in FDIC’s 

SOP. Since the related FDIC rules and 

FDIC’s SOP were subject to notice and 

public comment and have been 

applicable to depository institutions and 

certain SLHC positions for many years, 

OTS believes that prior notice and 

comment on these standards are also 

unnecessary and contrary to the public 

interest. 

Although OTS has concluded that 

public notice and comment are not 

required for this interim final rule, it 

invites comments during the 60-day 

period following publication. In 

developing a final rule, OTS will 

consider all public comments it receives 

within that period. 

B. Effective Date 

Under section 553(d) of the APA, a 

rule may not be effective until 30 days 

after its publication.25 This provision, 

however, does not apply where the 

agency finds good cause for making the 

rule effective immediately. For the 

reasons set forth above, OTS finds that 

there is good cause for making this rule 

effective immediately. OTS also notes 

that the APA’s delayed effective date 

requirement does not apply to a 

substantive rule that grants or 

recognizes an exemption or that relieves 

a restriction. As described in this 

preamble, this interim final rule 

exempts certain persons from the 

prohibitions in section 19(e) of the FDIA 

and prescribes procedures for granting 

additional exemptions on a case-by-case 

basis. Because this rule grants 

exemptions and relieves restrictions 

from the statutory prohibition, it is not 

subject to the 30-day delayed effective 

date requirement. 

Section 302 of the Riegle Community 

Development and Regulatory 

Improvement Act of 1994 (CDRIA) 26

requires that new regulations and 

amendments to existing regulations take 

effect on the first day of a calendar 

quarter that begins on or after the date 

of publication of the rule. This delayed 

effective date provision, however, 

applies only if the rule imposes 

additional reporting, disclosure, or other 

new requirements on insured depository 

institutions. This rule imposes no 

reporting, disclosure or other 

requirements on any insured depository 

institution. Section 302 is inapplicable. 

C. Regulatory Flexibility Act 

An initial regulatory flexibility 

analysis under the Regulatory 

Flexibility Act (RFA) (5 U.S.C. 601 et 

seq.) is required only when an agency is 

required to publish a notice of proposed 

rulemaking.27 As already noted, OTS 

has determined that publication of a 

notice of proposed rulemaking is not 

required for this interim final rule. 

Accordingly, the RFA does not require 


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25954 Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 

28Pub. L. 104–4, 109 Stat. 48 (March 22, 1995) 

(Unfunded Mandates Act). 

an initial regulatory flexibility analysis. 

Nonetheless, OTS has considered the 

likely impact of this rule on small 

entities. This interim final rule provides 

guidance to SLHCs and others 

explaining how OTS will interpret 

newly enacted statutory prohibitions, 

provides exemptions from these 

prohibitions, and describes procedures 

for obtaining case-by-case exemptions 

from the newly enacted prohibitions 

contained in section 19(e) of the FDIA. 

On the whole, the interim final rule will 

reduce the burden of compliance with 

the new statute. For these reasons, the 

OTS has concluded that the interim 

final rule should not have a significant 

impact on a substantial number of small 

entities, as defined in the RFA. 

D. Paperwork Reduction Act 

In accordance with the requirements 

of the Paperwork Reduction Act of 1995, 

OTS 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. OTS is 

requesting comment on a proposed 

information collection. OTS also gives 

notice that the proposed collection of 

information was submitted to OMB for 

review and approval (44 U.S.C. 

3507(d)). At the end of the comment 

period, the comments and 

recommendations received will be 

analyzed to determine whether the 

information collection should be 

modified. Any material modifications 

will be submitted to OMB for review 

and approval. All comments will 

become a matter of public record. 

Send comments, referring to the 

collection by title of the proposal or by 

‘‘Prohibited Service at SLHCs (1550–

NEW),’’ to OMB and OTS at these 

addresses: Office of Information and 

Regulatory Affairs, Attention: Desk 

Officer for OTS, U.S. Office of 

Management and Budget, 725—17th 

Street, NW., Room 10235, Washington, 

DC 20503, or by fax to (202) 395–6974; 

and Information Collection Comments, 

Chief Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, by fax to (202) 

906–6518, or by e-mail to 

infocollection.comments@ots.treas.gov. 

OTS will post comments and the related 

index on the OTS Internet Site at 

http://www.ots.treas.gov. In addition, 

interested persons may inspect 

comments at the Public Reading Room, 

1700 G Street, NW., by appointment. To 

make an appointment, call (202) 906–

5922, send an e-mail to 

public.info@ots.treas.gov, or send a 

facsimile transmission to (202) 906–

7755. To obtain a copy of the 

submission to OMB, contact Marilyn K. 

Burton at marilyn.burton@ots.treas.gov, 

(202) 906–6467, or facsimile number 

(202) 906–6518, Litigation Division, 

Chief Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552. 

Comments are invited on: 

(a) Whether the collection of 

information is necessary for the proper 

performance of OTS’s functions, 

including whether the information has 

practical utility; 

(b) The accuracy of the estimates of 

the burden of the information 

collection, including the validity of the 

methodology and assumptions used; 

(c) Ways to enhance the quality, 

utility, and clarity of the information to 

be collected; 

(d) Ways to minimize the burden of 

the information collection on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology; 

and 

(e) Estimates of capital or start up 

costs and costs of operation, 

maintenance, and purchase of services 

to provide information. 

In this interim final rule, OTS is 

soliciting comments concerning the 

following information collection. 

Title: Prohibited Service at Savings 

and Loan Holding Companies. 

OMB Control Number: 1550–NEW. 

Type of Review: New collection. 

Frequency of Response: On occasion. 

Affected Public: Savings and loan 

holding companies. 

Abstract: OTS is publishing this 

interim final rule implementing section 

710(a) of the Financial Services 

Regulatory Relief Act of 2006, which 

added a new section 19(e) to the Federal 

Deposit Insurance Act (FDIA). Section 

19(e) of the FDIA prohibits any person 

who has been convicted of any criminal 

offense involving dishonesty or a breach 

of trust, or money laundering or has 

agreed to enter into a pretrial diversion 

or similar program in connection with a 

prosecution for such an offense 

(prohibited person) from holding certain 

positions with respect to a savings and 

loan holding company (SLHC). This 

interim rule describes actions that are 

prohibited under the new statute and 

describes procedures for applying for an 

OTS order granting a case-by-case 

exemption. 

In order for a prohibited person to 

obtain or to continue in certain 

positions with an SLHC, the SLHC or 

the individual will need to apply to the 

OTS for an approval order for a case-bycase exemption. OTS does not believe 

that this requirement is punitive in 

intent. Rather, the primary criteria in 

assessing such applications is whether 

the prohibited person in his/her 

proposed capacity at the SLHC 

participates in the major policy making 

functions of the SLHC or threatens the 

safety and soundness of the insured 

depository institution that is controlled 

by the SLHC, the interests of its 

depositors, or the public confidence in 

the institution. The proposed collection 

of information is not burdensome in 

nature and pertains to the position at 

the SLHC to be held by the prohibited 

person, the prohibited person’s level of 

ownership of the SLHC, the specific 

nature of the offense involved, evidence 

of rehabilitation, and other relevant 

factors. 

Estimated Number of Respondents: 

50. 

Estimated Burden Hours per 

Response: 16 hours. 

Estimated Total Burden: 800 hours. 

E. Unfunded Mandates Act of 1995 

Section 202 of the Unfunded 

Mandates Reform Act of 1995,28

requires that an agency prepare a 

budgetary impact statement before 

promulgating a rule that includes a 

federal mandate that may result in the 

expenditure by state, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

in any one year. If a budgetary impact 

statement is required, section 205 of the 

Unfunded Mandates Act also requires 

an agency to identify and consider a 

reasonable number of regulatory 

alternatives before promulgating a rule. 

OTS has determined that the interim 

final rule will not result in expenditures 

by state, local, and tribal governments, 

in the aggregate, or by the private sector, 

of more than $100 million in any one 

year. Rather, this interim final rule will 

reduce the burden of compliance with 

newly enacted statutory prohibitions 

applicable to SLHCs and others by 

explaining how OTS will interpret 

newly enacted statutory prohibitions, 

providing regulatory exemptions from 

these prohibitions, and describing 

procedures for obtaining case-by-case 

exemptions from the newly enacted 

prohibitions contained in section 19(e) 

of the FDIA. Accordingly, OTS has not 

prepared a budgetary impact statement 

or specifically addressed the regulatory 

alternatives considered. 

F. Executive Order 12866 

OTS has determined that the interim 

final rule with request for comment is 


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not a significant regulatory action under 

Executive Order 12866. 

G. Plain Language 

Section 722 of the Gramm-LeachBliley Act (12 U.S.C. 4809) requires the 

Agencies to use ‘‘plain language’’ in all 

proposed and final rules published after 

January 1, 2000. OTS believes that the 

interim final rule is presented in a clear 

and straightforward manner and solicits 

comments on ways to make the rule 

easier to understand. 

List of Subjects 

12 CFR Part 509 

Administrative practice and 

procedure, Penalties. 

12 CFR Part 585 

Administrative practice and 

procedure, Holding companies, 

Reporting and recordkeeping 

requirements, Savings associations. 

Authority and Issuance 

■ For the reasons in the preamble, OTS 

is amending chapter V of title 12 of the 

Code of Federal Regulations as set forth 

below: 

PART 509—RULES OF PRACTICE AND 

PROCEDURE IN ADJUDICATORY 

PROCEEDINGS 

■ 1. Revise the authority citation for part 

509 to read as follows: 

Authority: 5 U.S.C. 504, 554–557; 12 

U.S.C. 1464, 1467, 1467a, 1468, 1817(j), 1818, 

1820(k), 1829(e), 3349, 4717; 15 U.S.C. 78(l), 

78o–5, 78u–2; 28 U.S.C. 2461 note; 31 U.S.C. 

5321; 42 U.S.C. 4012a. 

■ 2. In § 509.1, add a new paragraph (i) 

to read as follows: 

§ 509.1 Scope. 

* * * * * 

(i) Subpart D of this part governs 

hearings on denials of applications for 

case-by-case exemptions under 12 CFR 

part 585, which implements section 

19(e) of the FDIA. 

■ 3. Add a new subpart D to read as 

follows: 

Subpart D—Exemptions under Section 19(e) 

of the FDIA 

Sec. 

509.300 Scope. 

509.301 Hearing procedures. 

Subpart D—Exemptions under Section 

19(e) of the FDIA 

§ 509.300 Scope. 

The procedures in this subpart D 

govern hearings on denials of 

applications for case-by-case 

exemptions under 12 CFR part 585. Part 

585 implements section 19(e) of the 

FDIA, which prohibits persons who 

have been convicted of certain criminal 

offenses or who have agreed to enter 

into a pre-trial diversion or similar 

program in connection with a 

prosecution for such criminal offenses 

from occupying various positions with a 

savings and loan holding company. 

§ 509.301 Hearing procedures. 

(a) Hearings. The following 

procedures apply to hearings under 12 

CFR part 585. 

(1) The hearing shall be held in 

Washington, DC, or at another 

designated place, before a presiding 

officer designated by the Director. 

(2) An applicant may elect in writing 

to have the matter determined on the 

basis of written submissions, rather than 

an oral hearing. 

(3) The parties to the hearing are OTS 

Enforcement counsel and the applicant. 

(4) 12 CFR 509.2, 509.4, 509.6 through 

509.12, and 509.16 apply to the hearing. 

(5) Discovery is not permitted. 

(6) A party may introduce relevant 

and material documents and make oral 

argument at the hearing. 

(7) At the discretion of the presiding 

officer, witnesses may be presented 

within specified time limits, provided 

that a list of witnesses is furnished to 

the presiding officer and to all other 

parties before to the hearing. Witnesses 

must be sworn, unless otherwise 

directed by the presiding officer. The 

presiding officer may ask questions of 

any witness. Each party may crossexamine any witness presented by the 

opposing party. OTS will furnish a 

transcript of the proceedings upon an 

applicant’s request and upon the 

payment of the costs of the transcript. 

(8) The presiding officer has the 

power to administer oaths and 

affirmations, to take or cause to be taken 

depositions of unavailable witnesses, 

and to issue, revoke, quash, or modify 

subpoenas and subpoenas duces tecum. 

If the presentation of witnesses is 

permitted, the presiding officer may 

require the attendance of witnesses from 

any state, territory, or other place 

subject to the jurisdiction of the United 

States at any location where the 

proceeding is being conducted. Witness 

fees are paid in accordance with 12 CFR 

509.14. 

(9) Upon the request of a party, the 

record will remain open for five 

business days following the hearing for 

additional submissions to the record. 

(10) OTS Enforcement Counsel has 

the burden of proving a prima facie case 

that a person is prohibited from a 

position under section 19(e) of the 

FDIA. The applicant has the burden of 

proof on all other matters. 

(11) The presiding officer must make 

recommendations to the Director, where 

possible, within 20 days after the last 

day for the parties to submit additions 

to the record. 

(12) The presiding officer must 

forward his or her recommendation to 

the Director who shall promptly certify 

the entire record, including the 

presiding officer’s recommendations. 

The Director’s certification will close 

the record. 

(b) Decision. After the certification of 

the record, the Director will notify the 

parties of his or her decision by issuing 

an order approving or denying the 

application. 

(1) An approval order will require 

fidelity bond coverage for the position 

to the same extent as similar positions 

with the savings and loan holding 

company. The approval order may 

include such other conditions as may be 

appropriate. 

(2) A denial order will include a 

summary of the relevant factors under 

12 CFR 585.120(b). 

■ 4. Add a new part 585 to read as 

follows: 

PART 585—PROHIBITED SERVICE AT 

SAVINGS AND LOAN HOLDING 

COMPANIES 

Sec. 

585.10 What does this part do? 

585.20 What definitions apply to this part? 

Subpart A—Prohibition 

585.30 What actions are prohibited? 

585.40 What convictions or agreements to 

enter into pre-trial diversions or similar 

programs are covered by this part? 

585.50 What adjudications and offenses are 

not covered by this part? 

Subpart B—Exemptions 

585.100 Who is exempt from the 

prohibition under this part? 

585.110 How do I apply for a case-by-case 

exemption? 

585.120 What factors will OTS consider in 

reviewing my exemption application? 

585.130 How will I know if my application 

is approved? 

585.140 What procedures govern a hearing 

on my application? 

Authority: 12 U.S.C. 1462, 1462a, 1463, 

1464, 1467a, and 1829(e) 

§ 585.10 What does this part do? 

This part implements section 19(e)(1) 

of the Federal Deposit Insurance Act 

(FDIA), which prohibits persons who 

have been convicted of certain criminal 

offenses or who have agreed to enter 

into a pre-trial diversion or similar 

program in connection with a 

prosecution for such criminal offenses 

from occupying various positions with a 

savings and loan holding company. This 


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25956 Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 

part also implements section 19(e)(2) of 

the FDIA, which permits the Director to 

provide exemptions, by regulation or 

order, from the application of the 

prohibition. This part provides an 

exemption for savings and loan holding 

company employees whose activities 

and responsibilities are limited solely to 

agriculture, forestry, retail 

merchandising, manufacturing, or 

public utilities operations, and a 

temporary exemption for certain 

persons who held positions with respect 

to a savings and loan holding company 

as of October 13, 2006. The part also 

describes procedures for applying for an 

OTS order granting a case-by-case 

exemption. 

§ 585.20 What definitions apply to this 

part? 

The following definitions apply to 

this part: 

Institution-affiliated party is defined 

at 12 U.S.C. 1813(u), except that the 

phrase ‘‘savings and loan holding 

company’’ is substituted for ‘‘insured 

depository institution’’ each place that it 

appears in that definition. 

Person means an individual and does 

not include a corporation, firm or other 

business entity. 

Savings and loan holding company is 

defined at 12 CFR 583.20, but excludes 

a subsidiary of a savings and loan 

holding company that is not itself a 

savings and loan holding company. 

Subpart A—Prohibition 

§ 585.30 What actions are prohibited? 

(a) Person. If a person was convicted 

of a criminal offense described in 

§ 585.40, or agreed to enter into a pretrial diversion or similar program in 

connection with a prosecution for such 

a criminal offense, he or she may not: 

(1) Become, or continue as, an 

institution-affiliated party with respect 

to any savings and loan holding 

company. 

(2) Own or control, directly or 

indirectly, any savings and loan holding 

company. A person will own or control 

a savings and loan holding company if 

he or she owns or controls that company 

under 12 CFR part 574. 

(3) Otherwise participate, directly or 

indirectly, in the conduct of the affairs 

of any savings and loan holding 

company. 

(b) Savings and loan holding 

company. A savings and loan holding 

company may not permit any person 

described in paragraph (a) of this 

section to engage in any conduct or to 

continue any relationship prohibited 

under that paragraph. 

§ 585.40 What convictions or agreements 

to enter into pre-trial diversions or similar 

programs are covered by this part? 

(a) Covered convictions and 

agreements. Except as described in 

§ 585.50, this part covers: 

(1) Any conviction of a criminal 

offense involving dishonesty, breach of 

trust, or money laundering. Convictions 

do not cover arrests, pending cases not 

brought to trial, acquittals, convictions 

reversed on appeal, pardoned 

convictions, or expunged convictions. 

(2) Any agreement to enter into a 

pretrial diversion or similar program in 

connection with a prosecution for a 

criminal offense involving dishonesty, 

breach of trust or money laundering. A 

pretrial diversion or similar program is 

a program involving a suspension or 

eventual dismissal of charges or of a 

criminal prosecution based upon an 

agreement for treatment, rehabilitation, 

restitution, or other non-criminal or 

non-punitive alternative. 

(b) Dishonesty or breach of trust. A 

determination whether a criminal 

offense involves dishonesty or breach of 

trust is based on the statutory elements 

of the crime. 

(1) ‘‘Dishonesty’’ means directly or 

indirectly to cheat or defraud, to cheat 

or defraud for monetary gain or its 

equivalent, or to wrongfully take 

property belonging to another in 

violation of any criminal statute. 

Dishonesty includes acts involving a 

want of integrity, lack of probity, or a 

disposition to distort, cheat, or act 

deceitfully or fraudulently, and may 

include crimes which federal, state or 

local laws define as dishonest. 

(2) ‘‘Breach of trust’’ means a 

wrongful act, use, misappropriation, or 

omission with respect to any property or 

fund which 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. 

§ 585.50 What adjudications and offenses 

are not covered by this part? 

(a) Youthful offender or juvenile 

delinquent. This part does not cover any 

adjudication by a court against a person 

as: 

(1) A youthful offender under any 

youthful offender law; or 

(2) A juvenile delinquent by a court 

with jurisdiction over minors as defined 

by state law. 

(b) De minimis criminal offense. This 

part does not cover de minimis criminal 

offenses. A criminal offense is de 

minimis if: 

(1) The person has only one 

conviction or pretrial diversion or 

similar program of record; 

(2) The offense was punishable by 

imprisonment for a term of less than one 

year, a fine of less than $1,000, or both, 

and the person did not serve time in jail. 

(3) The conviction or program was 

entered at least five years before the date 

the person first held a position 

described in § 585.30(a); and 

(4) The offense did not involve an 

insured depository institution, insured 

credit union, or other banking 

organization (including a savings and 

loan holding company, bank holding 

company, or financial holding 

company). 

(5) The person must disclose the 

conviction or pretrial diversion or 

similar program to all insured 

depository institutions and other 

banking organizations the affairs of 

which he or she participates. 

(6) The person must be covered by a 

fidelity bond to the same extent as 

others in similar positions with the 

savings and loan holding company. 

Subpart B—Exemptions 

§ 585.100 Who is exempt from the 

prohibition under this part? 

(a) Employees. An employee of a 

savings and loan holding company is 

exempt from the prohibition in § 585.30, 

if all of the following conditions are 

met: 

(1) The employee’s responsibilities 

and activities are limited solely to 

agriculture, forestry, retail 

merchandising, manufacturing, or 

public utilities operations. 

(2) The savings and loan holding 

company maintains a list of all 

policymaking positions and reviews this 

list annually. 

(3) The employee’s position does not 

appear on the savings and loan holding 

company’s list of policymaking 

positions, and the employee does not, in 

fact, exercise any policymaking function 

with the savings and loan holding 

company. 

(4) The employee: 

(i) Is not an institution-affiliated party 

of the savings and loan holding 

company other than by virtue of the 

employment described in paragraph (a) 

of this section. 

(ii) Does not own or control, directly 

or indirectly, the savings and loan 

holding company; and 

(iii) Does not participate, directly or 

indirectly, in the conduct of the affairs 

of the savings and loan holding 

company. 

(b) Temporary exemption. (1) Any 

prohibited person who was an 

institution-affiliated party with respect 

to a savings and loan holding company, 

who owned or controlled, directly or 


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Federal Register / Vol. 72, No. 88 / Tuesday, May 8, 2007 / Rules and Regulations 25957 

indirectly a savings and loan holding 

company, or who otherwise participated 

directly or indirectly in the conduct of 

the affairs of a savings and loan holding 

company on October 13, 2006, may 

continue to hold the position with the 

savings and loan holding company. 

(2) This exemption expires on 

September 5, 2007, unless the savings 

and loan holding company or the person 

files an application seeking a case-bycase exemption for the person under 

§ 585.110 by that date. If the savings and 

loan holding company or the person 

files such an application, the temporary 

exemption expires on: 

(i) The date of issuance of an OTS 

order approving the application under 

§ 585.130(a); 

(ii) The expiration of the 20-day 

period for filing a request for hearing 

under § 585.130(b) provided there is no 

timely request for hearing following the 

issuance of an OTS order denying the 

application under that section; 

(iii) The date that OTS denies a timely 

request for hearing under § 585.140(a) 

following the issuance of an OTS order 

denying the application under 

§ 585.130(b); 

(iv) The date that the Director issues 

a decision under § 585.140(d); or 

(v) The date an applicant withdraws 

the application. 

§ 585.110 How do I apply for a case-bycase exemption? 

(a) Who may file. (1) A savings and 

loan holding company or a person who 

was convicted of a criminal offense 

described in § 585.40 or who has agreed 

to enter into a pre-trial diversion or 

similar program in connection with a 

prosecution for such a criminal offense 

(‘‘you’’) may file an application seeking 

an OTS order granting an exemption 

from the prohibitions in this part. 

(2) You may seek an exemption only 

for a designated position (or positions) 

with respect to a named savings and 

loan holding company. 

(3) You may not file an application 

less than one year after the latter of the 

date of OTS’s denial of the same 

exemption under § 585.130(b), 

§ 585.140(a)(2) or § 585.140(d). 

(b) Application and review 

procedures. You may seek OTS 

approval by filing your application with 

OTS under the standard treatment 

described in 12 CFR part 516, subpart A 

of this chapter. OTS will review your 

application under 12 CFR part 516, 

subpart E of this chapter (excluding 12 

CFR 516.270 and 516.280). 

(c) Prohibition pending OTS action. 

Unless you are exempt under 

§ 585.100(b), the prohibitions in 

§ 585.30 continue to apply pending OTS 

action on your application. 

§ 585.120 What factors will OTS consider 

in reviewing my application? 

(a) OTS review. (1) In determining 

whether to approve an exemption 

application filed under § 585.110, OTS 

will consider the extent to which the 

position that is the subject of your 

application enables a person to: 

(i) Participate in the major 

policymaking functions of the savings 

and loan holding company; or 

(ii) Threaten the safety and soundness 

of any insured depository institution 

that is controlled by the savings and 

loan holding company, the interests of 

its depositors, or the public confidence 

in the insured depository institution. 

(2) OTS will also consider whether 

you have demonstrated the person’s 

fitness to hold the described position. 

Some positions may be approved 

without an extensive review of a 

person’s fitness because the position 

does not enable a person to take the 

actions described in paragraph (a)(1) of 

this section. 

(b) Factors. In making the 

determinations under paragraph (a) of 

this section, OTS will consider the 

following factors: 

(1) The position; 

(2) The amount of influence and 

control a person holding the position 

will be able to exercise over the affairs 

and operations of the savings and loan 

holding company and the insured 

depository institution; 

(3) The ability of the management of 

the savings and loan holding company 

to supervise and control the activities of 

a person holding the position; 

(4) The level of ownership that the 

person will have at the savings and loan 

holding company; 

(5) The specific nature and 

circumstances of the criminal offense. 

The question whether a person who was 

convicted of a crime or who agreed to 

enter into a pretrial diversion or similar 

program for a crime was guilty of that 

crime is not relevant; 

(6) Evidence of rehabilitation; and 

(7) Any other relevant factor. 

§ 585.130 How will I know if my application 

is approved? 

(a) Approval. If OTS approves your 

application, OTS will issue an approval 

order. An approval order will include a 

summary of the relevant factors that 

OTS considered under § 585.120, will 

require fidelity bond coverage for the 

position to the same extent as similar 

positions with the SLHC. The approval 

order may include such other 

conditions as may be appropriate. 

(b) Denial. If OTS denies your 

application, OTS will issue a denial 

order. The denial order will include the 

following written information: 

(1) A summary of the relevant factors 

that OTS considered under § 585.120; 

and 

(2) A statement indicating that you 

may file a written request demonstrating 

good cause for a hearing on the denial 

of your application, and that you must 

file this request with OTS within 20 

days of the date of issuance of the order. 

§ 585.140 What procedures govern a 

hearing on my application? 

(a) OTS review of hearing request. 

OTS will review your hearing request to 

determine if you have demonstrated 

good cause for a hearing on your 

application. Within 30 days after the 

filing of a timely request for a hearing, 

OTS will notify you in writing of its 

decision to grant or deny the hearing 

request. If OTS grants your request for 

a hearing, it will order a hearing to be 

commenced within 60 days of the 

issuance of the notification. Upon the 

request of a party, the OTS may order 

a later hearing date. 

(b) Hearing procedures. Hearing 

procedures are set out at 12 CFR part 

509, subpart D of this chapter. 

Dated: April 30, 2007. 

By the Office of Thrift Supervision. 

John M. Reich, 

Director. 

[FR Doc. E7–8677 Filed 5–7–07; 8:45 am] 

BILLING CODE 6720–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2006–26775; Directorate 

Identifier 2007–CE–01–AD; Amendment 39–

15042; AD 2007–10–01] 

RIN 2120–AA64 

Airworthiness Directives; Air Tractor, 

Inc. Model AT–602 Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for certain 

Air Tractor, Inc. (Air Tractor) Model 

AT–602 airplanes. This AD requires you 

to install access holes to do repetitive 

detailed visual inspections for cracks in 

the horizontal stabilizer brace tube 

assembly, and if any cracks are found as 

a result of a visual inspection, to replace 


cprice-sewell on PROD1PC66 with RULES