Risk Management Manual of Examination Policies - FDIC

INTERNATIONAL BANKING Section 11.1
1. having the power to vote 25 percent or more of any
class of voting securities of the U.S. bank;
2. controlling in any manner the election of a majority of
the directors of the U.S. bank; or
3. exercising a controlling influence over the
management or policies of the company or bank.
Please note that the first two items are very similar to those
on the previous page from the FRA. Item three is different.
Also, these criteria are not as expansive as the preceding
supervisory definitions of control.
If an individual, family, or group of persons acting in
concert collectively has the power to vote 25 percent or
more of any class of stock of both the U.S. depository
institution and the bank in the foreign country, then the
same situation exists as under item (1) of the FRA and all
transactions with related interests would be subject to the
restrictions established in Regulation O.
If the beneficial owner(s)’s stock ownership/voting rights
are less than 25 percent, the next criteria must be reviewed.
Item (2) considers whether the beneficial owner(s)
controlled the election of a majority of the directors. For
example, Mr. Jones, his son, and his brother each own 20
percent of a U.S. depository institution. Each individual
also owns 10 percent of a foreign bank. Minutes of the
shareholders meetings of both the U.S. and the foreign
bank reflect that these three individuals nominated the
candidates for each institution’s Board and voted their
shares in a block. This scenario reveals that these two
entities are PBOs and subject to the restrictions of
Regulation O. If these three individuals had voted their
shares independently or in a different manner from each
other, then it would indicate that these two entities are not
subject to Regulation O, but a PBO does exist.
If neither the beneficial owner(s)’s stock ownership/voting
rights percentage nor control of the board’s election
thresholds are met, then item (3) must be reviewed.
Regulation O also states that a person is presumed to have
control, including the power to exercise a controlling
influence over the management or policies of a company or
bank, if the person:
• Is an executive officer or director of the company or
bank; and directly or indirectly owns, controls, or
has the power to vote more than 10 percent of any
class of voting securities of the company or bank; or
• Directly or indirectly owns, controls, or has the
power to vote more than 10 percent of any class of
voting securities of the company or bank; and no
other person owns, controls, or has the power to vote
a greater percentage of that class of voting
securities.
Ascertaining whether an individual, family, or group of
persons acting in concert exercises a controlling influence
over the management or policies of the bank is difficult to
determine. If the criteria in either item (a) or item (b)
above are met, then a PBO exists and all transactions with
related interests would be subject to the restrictions of
Regulation O.
An individual, family, or group of persons acting in concert
may exercise sufficient control to meet the supervisory
definition of presumed control for establishing that a PBO
exists; but, not meet the level of control required by
Regulation O. In these instances, the transactions between
the U.S. bank and the bank insiders’ related interests would
not be subject to the restrictions of Regulation O. Despite
the absence of regulations governing these transactions,
these dealings must nonetheless conform to reasonable
business terms and practices. Any abuses or questionable
practices are subject to criticism.
Business Structures
A PBO can have a simple or a complex business structure
or organization chart. A simple PBO business structure
consists of an individual who directly controls both a U.S.
depository institution and a foreign bank. However, PBOs
often exhibit a complex organizational structure that may
include multiple domestic and foreign shareholders
working in concert, who individually do not have direct
control of the U.S. and the foreign bank, but who
collectively exercise a controlling influence throughout the
PBO. The following is an illustration of a complex PBO
structure.
Demo Int’l Bank
Miami, FL, USA
JMM
Holdings
Caracas,
Venezuela
Demo Bank
Int’l
Panama
City,
Demo Bank
Intl
Cartegena,
Colombia
Mendosa
Family
Demo Int’l, C.A.
Caracas Venezuela
Mendosa
Finance
Co.
Caracas,
Demo Bank
Int’l
Bogotá,
Colombia
Demo Bank Mexico
Mexico City, Mexico
Demo Bank
Venezuela
Caracus,
Venezuela
Demo Bank
Brazil
Rio de Janeiro,
Brazil
DSC Risk Management Manual of Examination Policies 11.1-25 International Banking (12-04)
Federal Deposit Insurance Corporation