4000 - Advisory Opinions
Section 19 of the FDI Act, as Amended by Section 910 of FIRREA, May Apply to Independent Contractors But Does Not Require Depository Institutions to Fingerprint Present or Prospective Employees or Independent Contractors
February 28, 1990
Sheldon J. Reisman, Regional Counsel
Your recent letter raises questions regarding section 19 of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. 1829, as amended by section 910 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").
Your first question is "whether an independent contractor would be included within the term person" [as said term is used in section 910 of FIRREA]. It is abundantly clear from the language of FIRREA and from its legislative history in general, that Congress intended a significant expansion in the applicability of section 19. The provision was previously applicable to service as a director, officer or employee of an insured bank; it now applies to any person who would participate, directly or indirectly, in any manner in the conduct of the affairs of any insured depository institution. It is the fact of participation in the affairs of the depository institution, rather than the formal nature of the relationship which is determinative. In appropriate circumstances, an independent contractor will be subject to section 19.
The FDIC staff has already determined that amended section 19 is applicable to an individual who would indirectly participate in the affairs of an insured depository institution through the vehicle of his corporation, and that the bank could not utilize that corporation to provide financial services to its customers upon bank premises without prior FDIC written consent.
A variant of this question has also been propounded to the FDIC: does section 19 now apply to corporations and other business entities as well as individuals. The FDIC 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 (or Regulation) will also seek to address generally what constitutes participation in the affairs of a financial institution. The staff has determined that, pending the adoption of such a Policy Statement or Regulation, it will interpret section 19 consistently with the provisions of amended section 8(e) of the Act, 12 U.S.C. § 1818(e)(7)(F), which 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, the FDIC's Board of Directors may determine that, in an appropriate case, section 19 will be applicable directly to a corporation.
Your second question is "whether a bank is permitted to fingerprint employees and independent contractors pursuant to 12 U.S.C. § 1829, as amended. . . .'' The FDIC staff has not interpreted section 19 as specifically requiring a financial institution to fingerprint present or prospective employees or independent contractors. The staff interprets the section as requiring the institution to take whatever steps are appropriate under the circumstances, consistent with applicable law, to avoid hiring or permitting participation in its affairs by someone who has been convicted of a crime involving dishonesty or breach of trust. As you know, absent Federal preemption, it is a matter of State law as to whether a bank is permitted to fingerprint someone. If a State law prohibits fingerprinting, section 19 does not override such prohibition. For example, New York Labor Law section 201--a states, in part, that "except as otherwise provided by law, no person, as a condition of securing employment or of continuing employment shall be required to be fingerprinted." Thus, as far as we know, only banks in New York which are registered transfer agents for securities, whose personnel are required to be fingerprinted by section 240.17f--2 of the SEC's General Rules and Regulations, 17 C.F.R. § 240.17f--2, can require fingerprinting. Unless there is some other provision of law which requires the fingerprinting of personnel, it is prohibited in New York and any other State which has a similar prohibition, unless the regulations of the SEC are applicable.
I hope this information is helpful to you.