Suspension, Removal and Prohibition

Overview - Civil Violations

Any officer, director or other IAP of an insured depository institution may be suspended, removed from office and/or barred from participating in the affairs of any insured institution by the primary federal regulator of the institution

Authorized by Section 8(e) of the FDIA 12 USC 1818(e)

In general, a Suspension, Removal or Prohibition Order may be issued against any bank officer, director, employee or Institution-affiliated Party IAP for
violations of

Any law or regulation
A final C&D Order
A written condition imposed by an agency in connection with an application or other request
Any written agreement between the institution and the agency; or for
Engaging or participating in an unsafe or unsound banking practice
Breach of a fiduciary duty

If any of the conduct enumerated above is found, the agency then determines whether the actions resulted in

Actual or probable financial or other damage to the institution;
Actual or potential prejudice to the interests of the depositors; or,
Financial gain or benefit to the IAP

Thirdly the agency must find that the conduct

Involved personal dishonesty or
Showed willful disregard for the safety and soundness of the institution

For certain specific violations, the three step process outlined above is not necessary

Violations of subchapter II of chapter 53, title 31 that were not inadvertent or unintentional (31 USC 5322 (monetary transaction reporting and record keeping generally) or 5324 (structuring transactions to avoid reporting requirements)
Officer or director has knowledge that an IAP of the institution has violated any such provision or any provision of 12 USC 1818(g)(1)(A)(ii) [violations of 18 USC 1956 (Laundering of Monetary Instruments), 1957 (Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity) or 1960 (Engaging in an Unlicensed Money Transmitting Business) or 31 USC 5322 or 31 USC 5324]

In this case, agency shall consider whether the IAP took appropriate action to stop or prevent the reoccurrence of the violation

An officer or director has committed any violation of the Depository Institution Management Interlocks Act 12 USC 3201 et seq

Overview - Criminal Violations

If an IAP is charged in an information, complaint or indictment with

A crime involving dishonesty or breach of trust which is punishable by imprisonment for a term exceeding one year under State or Federal law, or
A criminal violation of section 1956, 1957, or 1960 of title 18 or section 5322 or 5324 of title 31
The agency may suspend the IAP from office or prohibit such party from further participation in any manner in the conduct of the affairs of the depository institution by issuing a written Notice
Suspension remains in effect until the charge is disposed of or the agency withdraws it

Requires a finding by the agency that

Continued service or participation by such party may pose a threat to the interests of the depository institution's depositors or
May threaten to impair public confidence in the depository institution

Upon conviction or agreement to enter into pretrial diversion, and after the appellate period has run

The agency may, if it finds that continued service or participation by such party may pose a threat to the interests of the depository institution's depositors or may threaten to impair public confidence in the depository institution, issue and serve upon such party an order removing such party from office or prohibiting such party from further participation in any manner in the conduct of the affairs of the depository institution without the prior written consent of the appropriate agency
In the case of criminal violations of section 1956, 1957, or 1960 of title 18 or section 5322 or 5324 of title 31, the agency shall issue such an order

18 USC 1956 Laundering of Monetary Instruments
18 USC 1957 Engaging in Monetary Transactions in
Property Derived from Specified Unlawful
Activity
18 USC 1960 Engaging in an Unlicensed Money
Transmitting Business
31 USC 5322 Monetary transaction reporting and record
keeping
31 USC 5324 Structuring monetary transactions to avoid
reporting requirements

Note that a judgment of acquittal does not preclude the agency from proceeding against the IAP under its civil enforcement authority described in the first table above 12 USC 1818(g)(1)(D)(ii)

Regulations

Civil Violations

Criminal Violations

The Process

The process begins as described above with the agency finding a violation and the other factors, if necessary

Upon making the findings outlined above, the agency will serve its Notice on the IAP of its intention to issue a Removal and Prohibition Order

Agencies may serve a Temporary Suspension Order simultaneously with a Notice and such Order will remain in effect until lifted by a court, charges are withdrawn or a Removal and Prohibition Order is entered against the individual

Requires a finding by the agency that such action is necessary for the protection of the depository institution or the interests of the depository institution's depositors
Effective upon service, but challengeable in US district court within 10 days of service
Remains in effect until stayed by the court, dismissed by the agency or is superseded by a final Order
See 12 USC 1818(f)

If the IAP consents to the issuance of the Order, the process stops right there and the Order is issued

If the IAP does not consent, the matter is referred to an Administrative Law Judge ALJ for a fact finding hearing and recommended agency decision

See 12 USC 1818(e)(4) for procedural details
Note that for actions brought by the OCC, the ALJ
decision is sent to the FRB (rather than the OCC) for issuance of the Order

Judicial Review and Enforcement of Orders

Final agency Orders are reviewable under the Administrative Procedure Act in the US Court of Appeals

Filing of an appeal does not operate as a stay of the Order unless specifically ordered by the court

After the appeal has been filed, agency may not modify or terminate the Order without leave of court 12 USC 1818(h)

Enforceable in federal district court by issuance of an order, violation of which may be treated as contempt of court

Note that the district court does not have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under any such section, or to review, modify, suspend, terminate, or set aside any such notice or order 12 USC 1818(j)(1)

Agencies may issue Civil Money Penalty CMP orders for violations of Removal and Prohibition Orders

Law Firm Commentaries

Civil Money Penalties, Removal and Prohibition Actions, and Restitution Orders The Requirement for a Specific Finding of Culpability/Scienter

Stephens B Woodrough

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