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The Civil Money Penalty Sanction: A New Tactic by the OCC

NOTE: This article is based upon actual events that occurred in connection with an action defended by the Firm for the assessment of a civil money penalty instituted by the Office of the Comptroller of the Currency (“OCC”) against a senior officer of a small community national bank. In the interest of privacy, the identity of the officer and the name of the bank are not disclosed.1

In February 2001, the Office of the Comptroller of the Currency (“OCC”) issued a formal Notice of Assessment of a Civil Money Penalty (“Notice”) against Banker Jones pursuant to section 8(i)(2) of the Federal Deposit Insurance Act (“Act”), 12 U.S.C. §1818(i)(2)2. The Notice alleged that Banker Jones had “caused, brought about, participated in, counseled, aided, or abetted” multiple violations of 12 C.F.R. §21.21 that were allegedly committed by the ABC National Bank (“Bank”) where Banker Jones served as President.3 The most telling aspect of the OCC action was reflected in the small size of the penalty that agency sought to impose for the all of the charged violations of law. The total penalty was only $2,000.

It is almost certain that the nominal amount of the proposed penalty was set by the OCC based upon an assumption that Banker Jones would agree to execute a stipulation agreement for the issuance of the penalty order by consent rather than exercise his legal right to an evidentiary hearing before an impartial judge. The OCC knew that the total cost of retaining counsel and engaging in a litigated proceeding with the agency would dwarf the proposed penalty. Faced with a choice of either consenting to pay a $2,000 penalty or spending 100 times that amount to dispute the charged violations in an evidentiary proceeding, the agency was convinced that the execution of a consent order was the only rational decision that could be made by Banker Jones.

The OCC supposition was flat wrong. Banker Jones requested an evidentiary hearing to determine the factual and legal merit of the charged violations of law, and based his decision upon several considerations: (1) the issuance of a consent penalty order would result in a permanent blot on his record of performance as a chief executive officer and could have serious adverse consequences in the future; (2) the charged violations of law were not scheduled in the OCC report of examination upon which the penalty action was instituted - it being impossible to “aid and abet” the Bank’s violations of law (as charged in the Notice) if the agency has never determined or otherwise indicated at any examination that the Bank had committed such violations; (3) the OCC does not have the jurisdictional authority to institute a penalty action under 12 U.S.C. §1818(i)(2) for violations of regulations promulgated under 12 U.S.C. §1818(s)(1), but is limited to the authority provided in 12 U.S.C. §1818(s)(3) which states that for violations of regulations issued under 12 U.S.C. §1818(s)(1), the agency “shall issue” a cease and desist order pursuant to 12 U.S.C. §1818(b);4 and (4) the Bank’s Board of Directors had formally adopted an indemnification policy and entered into a severance agreement with Banker Jones that covered the legal fees and expenses in question.

An administrative law judge was formally appointed to hear the case, and an evidentiary hearing was scheduled to convene in October 2001. In order to prepare for that hearing, Banker Jones needed to conduct discovery and gather supporting documentary and testimonial evidence. Accordingly, and over a period of four months, Banker Jones caused several subpoenas to be issued requiring the production of certain documents, and conducted extensive reviews of such records and interviews of the persons who produced them. In conducting such discovery, Banker Jones incurred substantial legal fees and related expenses. Unfortunately, the Bank refused to pay those costs under its indemnification policy and severance agreement with Banker Jones.5 But the biggest surprise was yet to come. In August 2001, and without warning or any type of advance notification, the OCC issued a final order that summarily dismissed all of the charged violations of law in the Notice.

The obvious question is why did the OCC dismiss formal charges it had made only six months earlier? The reasons advanced by OCC Enforcement in formal written pleadings filed in a related action are unprecedented and strain (if not shatter) the bounds of credibility. In three separate pleadings filed by OCC Enforcement, the agency explained that the penalty action against Banker Jones was dismissed because the agency did not have sufficient funds and resources to engage in a litigated proceeding to determine the merit of the charges it made to institute that action! OCC Enforcement explained:

[B]ecause of resource considerations, the OCC [decided] to issue a Letter of Reprimand to ... in lieu of a final order of assessment of a civil money penalty.
* * *
The OCC [decided] it was best to not expend its limited resources to litigate a matter involving the assessment of a $2,000 civil money penalty.
* * *
The OCC [decided] it needed to conserve resources more than it needed to obtain a final order assessing a $2,000 civil money penalty against …

Since all of the factual information needed to make the decision to abort the penalty action based upon “resource considerations” were known by the OCC six months earlier when it issued the Notice, it logically follows that the decision to dismiss the case must have been made when it was instituted. The only unresolved issue at the time the Notice was issued was when (not if) the charges would be dismissed.

The ultimate conclusion drawn from that scenario is inescapable and chilling: At the time the OCC issued the Notice, the agency only pretended to offer Banker Jones the opportunity to exercise his legal right to a hearing. The charges were never issued against Banker Jones for the purpose of assessing a penalty in accordance with the due process procedures set forth in the Federal statutes and implementing regulations. Rather, the sole purpose of the Notice was to initiate the enforcement and adjudication process and to manipulate that process by using it as a weapon to coerce Banker Jones to pay a penalty order issued by consent, or failing in that effort, to inflict a financial penalty in the form of the legal fees and expenses Banker Jones would incur to prepare for an evidentiary hearing the agency had already decided would never be convened.

The tactic employed by OCC Enforcement in the case of Banker Jones is duplicitous and manipulative, and is therefore patently illicit and unethical. It is also new. In all of the Firm’s experience, it has never been employed by the OCC or any of the other Federal banking agencies in any prior enforcement action. We can only hope that it is never used again. Nevertheless, the experience of Banker Jones should prompt any future target of a civil money penalty who is considering a request for a hearing to ask whether the agency really intends to proceed with such a hearing where the amount of the penalty in question is substantially less that the aggregate cost of engaging in an adjudication proceeding in accordance with due process of law.



1. Although the civil money penalty action in question was terminated by an unconditional and final order issued by the OCC that dismissed all of the alleged violations of law, such order was not published. Nevertheless, if anyone wants to reference the OCC action in this case to support an argument regarding an apparent willingness of OCC Enforcement to embrace and engage in duplicitous action (explained in the article) as a legal tactic, the Firm will provide the case caption and OCC Docket Number upon request.

2. The referenced statute empowers the OCC and the other Federal banking agencies to assess a civil money penalty for a violation of “any law or regulation.” It is important to understand that liability under that statute is absolute. The Federal appellate courts have ruled uniformly that culpability or the state of mind of the offender is irrelevant for purposes of determining liability, and that a penalty can be imposed regardless of whether the violation occurred as the result of negligent oversight, reckless indifference or willful misconduct. Such factors are relevant only in determining the proper amount of penalty to be imposed, not liability.

3. This OCC regulation was promulgated pursuant to a mandate in an amendment to the Bank Secrecy Act (“BSA”) which was codified in the United States Code as section 8(s)(1) of the Act (12 U.S.C. §1818(s)(1)). Under that mandate, all of the Federal banking agencies adopted parallel regulations for financial institutions subject to their supervisory authority. See 52 Fed. Reg. 2858 (1987) announcing the simultaneous promulgation of 12 C.F.R. §21.21 by the OCC; 12 C.F.R. §208.63 by the Board of Governors of Federal Reserve Board; 12 C.F.R. §326.8 by the FDIC; 12 C.F.R. §563.17 by the OTS; and 12 C.F.R. §748.2 by the NCUA.

4. This conclusion is applicable to all of the Federal regulatory agencies, not just the OCC. The Department of the Treasury is the only Federal agency with the legal authority to assess a civil money penalty for a violation of BSA or any implementing BSA regulation. For a comprehensive analysis and discussion of this issue, see Woodrough, Civil Money Penalties and the Bank Secrecy Act - A Hidden Limitation of Power, 119 Banking Law J. 46-61 (Jan. 2002).

5. The Bank’s surprising action was a flagrant breach of contract and is the subject of a civil action for damages that Banker Jones instituted against the Bank, and is currently pending trial. Banker Jones believes that the OCC was involved and had an influential role in the Bank’s decision to disregard its contractual obligations to him.


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Last revised: June 1, 2012.