Regulatory Bulletin  1.1-102 Conflict of Interest Policy

Date:	03/27/1998
Referenced Sources:	G.L. c. 167, s. 2 G.L. c. 268A 18 U.S.C. ss. 212 18 U.S.C. ss. 213

1.0 Applicability and scope

All banks, credit unions, and licensees, as well as employees of the Division of Banks (Division), are subject to the provisions of this bulletin. This bulletin applies to all specified credit extensions except for credit extensions which existed prior to the date that this bulletin was originally issued (see below, Section III).

2.0 Policy

A. Loans to Employees of the Division of Banks

1. FDIC insured institutions
   18 U.S.C. § 212 prohibits a bank officer, director or employee from making a loan to, and 18 U.S.C. § 213 prohibits an examiner accepting a loan from a member bank of the Federal Reserve or a bank insured by the Federal Deposit Insurance Corporation (FDIC), or any affiliate thereof, which the examiner examines or has the authority to examine. This provision applies to all Division employees, including examiners and managers.

   The FDIC has taken the view that a loan by a bank insured by FDIC to an examiner, either federal or state appointed, who may by law examine the bank, constitutes a potential violation of law, which it is required by statute to report to the United States Attorney.

   This matter is called to your attention due to the potential harsh penalties imposed by the federal law on both an employee subject to the statute and the state-chartered banks.

   Division personnel are therefore only able to obtain credit from non-FDIC insured state-chartered institutions, non-bank creditors, federally-chartered institutions or an out-of-state lender.

2. Non FDIC-Insured Institutions

   Any borrowings by a Division employee from any financial institution or licensed entity regulated by the Division not subject to the prohibition in Section II(A)(1) of this bulletin, must receive prior approval from the Division. To obtain such approval, an employee must submit a written request addressed to the Commissioner which specifies the terms of the borrowing including the institution or licensee involved, the type of loan, the rate, term and amount of the credit. The Commissioner or a designee will review the request to ensure the employee's disqualification will not impede the Division's ability to examine and supervise the lending institution and to ensure that no preferential treatment is being given. Personnel will be contacted expeditiously once a determination is made. All extensions of credit are subject to this procedure.

3. Disqualification

   Examiners who have a loan with a state-chartered bank, credit union or licensee are disqualified from examining that bank, credit union or licensee. A loan includes any extension of credit such as a credit card, overdraft protection plan and any other transaction whereby a bank, credit union, or licensee extends credit. Generally, a loan which was not in violation of the statute when made is permitted to be repaid according to its existing terms.

   Institutions regulated by the Division are prohibited from offering preferential treatment to employees of the Division who would not otherwise be eligible for such services. Division employees are subject to its Code of Conduct, especially in the event that such employees default on a loan or draw a check on insufficient funds.

B. Commonwealth's Conflict of Interest Law-Gifts

The purpose of the Conflict of Interest Law, G.L. c. 268A, as described by the State Ethics Commission is "to ensure that public employees's; private financial interests and personal relationships do not conflict with their public obligations. The law is broadly written to prevent a public employee from becoming involved in a situation which could result in a conflict or give the appearance of a conflict." (Commonwealth of Massachusetts, State Ethics Commission, A Practical Guide to the Conflict of Interest Law and Financial Disclosure Law for State Employees, (Boston, MA: State Ethics Commission, 1987) 3.)

Section 3 of G.L. c. 268A governs gifts and is applicable to all Division employees, state-chartered banks, credit unions, licensees and others involved with the Division. The following is a summary of that section from the State Ethics Commission. As a state employee,

It is illegal to request or accept anything of "substantial value" from anyone with whom you have or are likely to have official dealings (absent some family or social relationship which would explain the gift) even if the motivation for the gift is to express gratitude for a job well done or to foster goodwill.

It is also illegal for a private party to offer or give anything of substantial value to a public official or employee if it is given "for or because of" some act the official has performed or will perform; this is true even if there is no corrupt intent on the part of either the giver or the receiver.

In 1976, the Massachusetts Appeals Court decided that $50 is "substantial value." In 1985, the State Ethics Commission issued a similar ruling. Items of "substantial value" range from cash, additional compensation and tips to free tickets and passes to entertainment events. In addition, free or discounted services such as construction or accounting work are considered gifts. (State Ethics Commission 6.)

To avoid any appearance of impropriety, the Division recommends that regulated institutions make no gifts to Division employees.

C. Outside Employment and Business Activity

An employee of the Division is prohibited from working for any entity, other than the Commonwealth, whether self-owned or otherwise during the employee's work hours. In addition, the Division would look to ensure that any outside employment or business activity or the hours to be devoted to such activity would not impair the employee's availability, capacity or efficiency in performing his or her official duties as an employee of the Commonwealth.

D. Insider Information

1. Confidentiality
   Under Massachusetts law, all information developed within the examination process is confidential and therefore not a public record. (See RB 1.1-104, Public Information Requests.) Examiners and staff of the Division with access to the records of a bank, credit union, or licensee and, in particular, the minutes of the governing board are required to keep that information confidential. Additionally, the use of any such inside information by an employee of the Division to secure unwarranted privileges for themselves, their families or others or to further the employee's personal interest in any manner is prohibited under the Conflict of Interest Law. The purpose of this prohibition is to prevent state employees from taking advantage of their official positions to further their private interests.

2. Recommendations & Referrals
   Employees of the Division may not recommend or suggest that anyone obtain the services of any particular professional or firm, such as an accountant, attorney or any other professional with any official business which involves or may involve the Division.

E. Employment Negotiation

Financial institutions and licensed entities regulated by the Division as prospective employers of current state employees should be aware that such employees are subject to certain disclosure requirements in regard to negotiating for prospective employment. There is a substantial risk of conflicting loyalties whenever a public employee negotiates for prospective employment with a party with whom the employee has concurrent official dealings. The State Ethics Commission issued Commission Advisory No. 14 to address this issue. In summary, the Advisory provides that a state employee is prohibited from participating officially in any particular matter in which any person or organization with whom the employee is negotiating or has any arrangement concerning prospective employment has a financial interest. This does not prohibit a state employee from seeking prospective employment but requires that certain abstention and/or disclosure requirements be observed if the employee would customarily be expected to participate officially in a matter affecting the financial interests of the person or organization with whom the employee is negotiating. In these situations, the employee must abstain from participation in the matter. Further, state employees must also notify in writing both the State Ethics Commission and their appointing official of the nature and circumstances of the particular matter and make full disclosure of the financial interest affected. For specific questions, please consult the Commission Advisory or contact the State Ethics Commission.

3.0 Historical notes

This bulletin combines Administrative Bulletin 5-6 first issued on July 20, 1978, Administrative Bulletin 7-1 first issued on July 8, 1976, and Administrative Bulletin 9-2 deleted in 1993.

4.0 Authority

G.L. c. 167, s. 2; G.L. c. 268A; 18 U.S.C. ss. 212 and 213.