[Federal Register Volume 72, Number 88 (Tuesday, May 8, 2007)]
[Rules and Regulations]
[Pages 25948-25957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-8677]


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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.

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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:
    <bullet> 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.
    <bullet> Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: OTS-2007-0008.
    <bullet> 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 
<a href="/cdn-cgi/l/email-protection#93aff2b3fbe1f6f5ae" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>, 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:

[[Page 25949]]

    <bullet> Become, or continue as, an institution-affiliated party 
with respect to an insured depository institution;
    <bullet> Own or control, directly or indirectly, any insured 
depository institution; or
    <bullet> Otherwise participate, directly or indirectly, in the 
conduct of the affairs of any insured depository institution.\1\
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    \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 ten-
year 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.
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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? (Sec.  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? (Sec.  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? (Sec.  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.
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    \2\ A 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.
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    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:
    <bullet> 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\
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    \3\ Id.
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    <bullet> 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.
    <bullet> 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.
    <bullet> 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\
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    \4\ Id.
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    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

[[Page 25950]]

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\
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    \5\ Accordingly, 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.
    \6\ Compare 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.'')
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    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\
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    \7\ See Introduction to FDIC's SOP, 63 FR at 66184.
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What convictions or agreements to enter into pre-trial diversions or 
similar programs are covered by this part? (Sec.  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:
    <bullet> 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\
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    \8\ See Section B.(1) of FDIC's SOP, 63 FR at 66184.
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    <bullet> 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 non-criminal or non-punitive alternative.\9\
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    \9\ See Section B.(2) of FDIC's SOP, 63 FR at 66184-85.
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    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.
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    \10\ See Section B.(3) of FDIC's SOP, 63 FR at 66185.
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    ``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 Sec.  585.100.\11\
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    \11\ Id.
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    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? (Sec.  
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 Sec.  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\
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    \12\ See Sections B.(4) & B.(5) of FDIC's SOP, 63 FR at 66185.
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    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 pre-trial 
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.

[[Page 25951]]

Exemptions

Who is exempt from the prohibition under this part? (Sec.  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\
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    \13\ See section D. of FDIC's SOP, 63 FR at 66185.
    \14\ OTS 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 
vice-president 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.''
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    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

[[Page 25952]]

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\
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    \15\ OTS 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.
    \16\ As a result of these conditions, an officer of a SLHC, for 
example, would not be within the scope of the exemption.
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    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 Sec.  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 Sec.  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? (Sec.  585.110)

    In addition to the regulatory exemption at Sec.  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\
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    \17\ See FDIC rules at 12 CFR 308.158(b).
    \18\ See 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.
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    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 Sec.  585.100(b).

What factors will OTS consider in reviewing my exemption application? 
(Sec.  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:
    <bullet> Participate in the major policymaking functions of the 
SLHC; or
    <bullet> 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\
---------------------------------------------------------------------------

    \20\ See OTS's discussion of Sec.  585.100 above.
---------------------------------------------------------------------------

    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 Sec.  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\
---------------------------------------------------------------------------

    \21\ See FDIC rules at 12 CFR 308.157 and Section D. of FDIC' 
SOP, 63 FR at 66185.
---------------------------------------------------------------------------

How will I know if my application is approved? (Sec.  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? (Sec.  585.140)

    OTS will review a hearing request to determine if the applicant has

[[Page 25953]]

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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \23\ See 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.'')
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \24\ 5 U.S.C. 553.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

    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.
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

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

[[Page 25954]]

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.
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 603.
---------------------------------------------------------------------------

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 
<a href="/cdn-cgi/l/email-protection#7a13141c15191516161f190e13151454191517171f140e093a150e09540e081f1b09541d150c"><span class="__cf_email__" data-cfemail="6d04030b020e020101080e19040203430e0200000803191e2d02191e43191f080c1e430a021b">[email protected]</span></a>. 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 <a href="/cdn-cgi/l/email-protection#c5f9a4e5adb7a0a3f8" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>, or send a 
facsimile transmission to (202) 906-7755. To obtain a copy of the 
submission to OMB, contact Marilyn K. Burton at 
<a href="/cdn-cgi/l/email-protection#046965766d687d6a2a667176706b6a446b70772a70766165772a636b72"><span class="__cf_email__" data-cfemail="274a46554e4b5e49094552555348496748535409535542465409404851">[email protected]</span></a>, (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-by-case 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.
---------------------------------------------------------------------------

    \28\ Pub. L. 104-4, 109 Stat. 48 (March 22, 1995) (Unfunded 
Mandates Act).
---------------------------------------------------------------------------

F. Executive Order 12866

    OTS has determined that the interim final rule with request for 
comment is

[[Page 25955]]

not a significant regulatory action under Executive Order 12866.

G. Plain Language

    Section 722 of the Gramm-Leach-Bliley 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

0
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

0
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.


0
2. In Sec.  509.1, add a new paragraph (i) to read as follows:


Sec.  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.

0
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


Sec.  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.


Sec.  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 cross-examine 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).

0
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)


Sec.  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

[[Page 25956]]

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.


Sec.  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


Sec.  585.30  What actions are prohibited?

    (a) Person. If a person was convicted of a criminal offense 
described in Sec.  585.40, 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:
    (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.


Sec.  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 
Sec.  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.


Sec.  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 Sec.  
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


Sec.  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 Sec.  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

[[Page 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-by-case exemption for the person under Sec.  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 Sec.  585.130(a);
    (ii) The expiration of the 20-day period for filing a request for 
hearing under Sec.  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 
Sec.  585.140(a) following the issuance of an OTS order denying the 
application under Sec.  585.130(b);
    (iv) The date that the Director issues a decision under Sec.  
585.140(d); or
    (v) The date an applicant withdraws the application.


Sec.  585.110  How do I apply for a case-by-case exemption?

    (a) Who may file. (1) A savings and loan holding company or a 
person who was convicted of a criminal offense described in Sec.  
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 Sec.  
585.130(b), Sec.  585.140(a)(2) or Sec.  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 
Sec.  585.100(b), the prohibitions in Sec.  585.30 continue to apply 
pending OTS action on your application.


Sec.  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 Sec.  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.


Sec.  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 Sec.  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 
Sec.  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.


Sec.  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


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