4000 - Advisory Opinions
Clarification Regarding Section 19 of the FDI Act as Amended by FIRREA
December 15, 1989
John L. Douglas, General Counsel
I am writing in response to your inquiry on behalf of your client *** , its subsidiaries and affiliates (collectively, "***"), for clarification with respect to the scope of section 19 of the Federal Deposit Insurance Act (the "FDIA"), as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). In general, section 19 imposes certain penalties upon any "person" who has been convicted of certain crimes if such person participates in the conduct of the affairs of an insured depository institution without the consent of the Federal Deposit Insurance Corporation (the "FDIC").
On September 11, 1989, *** entered guilty pleas to six felony counts of mail and securities fraud pursuant to a plea agreement previously entered into with the Office of the United States Attorney for the Southern District of New York. Section 19 does not define the types of activities that would be regarded as participation in the conduct of the affairs of an institution and, in your view, is somewhat ambiguous with respect to the kinds of offenses that would trigger its application. In any event, it is your belief that section 19 should not be construed to apply to a business entity such as *** . It is your view that as a matter of statutory construction, section 19 is intended to apply to individuals and not to business entities. You request that I confirm this construction of section 19.
Our staff is working on the development of a Policy Statement or regulation interpreting and analyzing section 19 that will, among other things, seek to address whether, and/or to what extent, section 19 should be applied to corporations and other business entities. The Policy Statement will also seek to address generally what constitutes participation in the conduct of the affairs of a financial institution.
Since there is no express legislative history in FIRREA concerning the application of the amended section 19 to corporate entities, until such a policy statement is adopted and issued we will generally interpret and apply section 19 consistent with the language contained in section 904(a) of FIRREA on the applicability of amended section 8(e) to corporate entities. That section, which will be codified at 12 U.S.C. § 1818(e)(7)(F), states:
"(F) APPLICABILITY.--This paragraph shall only apply to a person who is an individual, unless the Board specifically finds that it should apply to a corporation, firm, or other business enterprise."
Accordingly, we advise you that unless a regulation or a Policy Statement is adopted which states that section 19 will be applied to corporate entities, or unless the Board of Directors specifically determines otherwise with respect to *** , we will not subject *** to the prohibitions of section 19.1
Once a final policy statement or regulation is developed, it may be necessary for *** , at some point, to file an application or submit additional information upon which we can make a definitive determination of the appropriateness of applying section 19 to facts and circumstances such as those faced by *** .
Among the issues that may need to be addressed are: (a) what individuals within the corporation were responsible for the conduct in question; (b) whether those individuals are still with the corporation; (c) what individuals or persons had oversight responsibility; (d) what activities related to banking the corporation hopes to engage in, now or in the future; and (e) the names of the institutions that may be affected by the activity.
We trust this is responsive to your inquiry. If you desire additional information, or want to discuss this further, please contact Douglas H. Jones, Deputy General Counsel or Arthur L. Beamon, Associate General Counsel.
1We suggest that any other corporate entity that may be subject to section 19 requirements contact the appropriate FDIC Regional Office and provide any information that may be required for a determination as to whether section 19 should be applied under the specific circumstances. Go back to Text