Civil Money Penalties

Overview

Civil money penalties are an enforcement tool whereby the financial regulatory agencies can assess substantial monetary penalties against the institutions they regulate and those institutions' IAPs

CMPs are not restitution
Purpose is not only to punish those who violate laws and sound banking practices, but also to deter future violations.
Normally, CMPs do not trigger the double jeopardy provisions of the US Constitution

See Hudson v US, 522 US 93 1997

CMPs may be issued in connection with other regulatory sanctions and remedies

See In Re Donohoo (Removal Order, temporary C&D, restitution and CMP)

In general, CMP Orders may be issued for violation of:

a law or regulation
a C&D Order
a written condition imposed by an agency in connection with an application
a written agreement
or for gross misconduct involving: unsafe or unsound banking practices or breach of fiduciary duty

Each head of an agency that issues CMPs is required to periodically adjust the amounts of the CMPs in order to keep pace with the rate of inflation. See note following 28 USC 2461

Regulations regarding CMP amount adjustments

OCC - 12 CFR Part 19.240
FRB - 12 CFR Part 263.65
FDIC - 12 CFR Part 308.132
OTS - 12 CFR Part 509.103
NCUA - 121 CFR Part 747.1001
N.B. The agencies have adjusted many, but not all, of their civil money penalties by regulation. The agencies have neither adjusted the penalties in all the statutes which they enforce concurrently, nor, when making adjustments, always uniformly increased the maximum amounts of such penalties. Although differences are pointed out in certain instances below, each agencys regulations must be carefully compared with the applicable statutes

Statutory Scheme, Penalty Amounts and Calculations

There are two major statutory provisions relating to CMPs: Section 8(i)(2) of the FDIA (12 USC 1818(i)(2)) (utilized by the OCC, FRB, FDIC and OTS) and Section 206(k) of the FCUA (12 USC 1786(k)) (utilized by the NCUA)

The federal banking agencies have consolidated the spectrum of CMP offenses into three broad levels or tiers

Potential penalties are based, among other factors, upon which "tier" the offense falls into. Potential penalties are applicable to both insured depository institutions and IAPs for -

First Tier: violations of:

Any law or regulation;
Any final or temporary order issued under section 8 or any final order under 12 USC 1831o or 12 USC 1831p-1;
Any condition imposed in writing in connection with the grant of any application or other request by such depository institution;
Any written agreement between such depository institution and such agency
Penalty - shall forfeit and pay a CMP of not more than $6,500 for each day during which the violation continues [amount increased from $5,000]

Second tier: knowingly:

Committing any First Tier violation by recklessly engaging in an unsafe and unsound practice in conducting the affairs of such insured depository institution; or,
Breaching any fiduciary duty;
provided that such violation, practice, or breach:
Is part of a pattern of misconduct;
Or, causes or is likely to cause more than a minimal loss to such depository institution;
Or results in pecuniary gain or other benefit to such party,
Penalty - shall forfeit and pay a CMP of not more than $32,500 for each day during which such violation, practice, or breach continues [amount increased from $25,000].

Third Tier: any insured depository institution which, and any IAP who knowingly

Commits any violation described in the First Tier;
Engages in any unsafe or unsound practice in conducting the affairs of such depository institution; or
Breaches any fiduciary duty; and
Knowingly or recklessly causes a substantial loss to such depository institution or a substantial pecuniary gain to such party by reason of such violation or practice
Penalty - shall forfeit and pay a CMP of not more than: (i) in the case of any person other than an insured depository institution, an amount to not exceed $1,250,000 [amount increased from $1,000,000]; and (ii) in the case of any insured depository institution, an amount not to exceed the lesser of-- (I) $1,250,000; or (II) 1 percent of the total assets of such institution. [Amount increased from $1,000,000.]

Assessment and Hearing: any penalty imposed under any of the three tiers may be assessed and collected by the appropriate Federal banking agency by written notice.

If a hearing is not timely requested, the assessment constitutes a final and unappealable order. 12 U.S.C. 1818(i)(2)(E)
The hearing shall be afforded if it is requested within twenty days after the issuance of the notice of assessment. 12 U.S.C. 1818(i)(2)(H)
Hearings, decisions, orders, and judicial review are provided for in 12 U.S.C. 1818(h)
The appropriate Federal banking agency may compromise, modify, or remit any penalty which it may assess or already had assessed under any of the three tiers. 12 U.S.C. 1818(i)(2)(F)
The agency that imposed the penalty shall recover the amount assessed by action in the appropriate U.S. district court, if the insured depository institution or other person fails to pay an assessment after any such penalty has become final, 12 U.S.C. 1818(i)(2)(I)
In appropriate circumstances the agency may obtain a temporary restraining order affecting funds, assets, or other property, and the appointment of a temporary receiver to administer the restraining order. 12 U.S.C. 1818(i)(4)

Mitigating Factors - In determining the amount of any penalty imposed under section 8(i)(2)s First, Second, or Third Tiers, the appropriate agency is required to take into account the appropriateness of the penalty with respect to:

The size of financial resources and good faith of the insured depository institution or other person charged;
The gravity of the violation;
The history of previous violations; and
Such other matters as justice may require. 12 U.S.C. 1818(i)(2)(G)

The mitigating factors apply to both consent and adjudicated CMPs
Agency has the burden of going forward with evidence establishing the respondents ability to pay; it is not an affirmative defense. Dazzio v FDIC, 970 F2d 71 (5thCir, 1992)
Note that some Federal laws have their own schedule of penalties and/or list of mitigating factors

See, e.g., the Flood Disaster Protection Act of 1973, as amended, 42 USC 4012a(f), and section 21B of the Securities Exchange Act of 1934, 15 USC 78u-2

For a more in-depth discussion of CMP penalties, see the topic page Calculation and Assessment of Civil Money Penalties

CMP Regulations

OCC regulations regarding civil money penalty inflation adjustments - 12 CFR Part 19, Subpart O

OCC regulations regarding civil money penalty authority under the securities laws - 12 CFR Part 19, Subpart F

FDIC regulations regarding Assessment of Penalties
12 CFR Part 308, Subpart H

Law Firm Commentaries

Civil Money Penalties, Removal and Prohibition Actions, and Restitution Orders The Requirement for a Specific Finding of Culpability/Scienter
What constitutes "pecuniary gain or other benefit" for Second Tier CMP?

Stephens B Woodrough

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