WASHINGTON -- A federal appeals court here has ruled that regulatory agencies have just five years to bring administrative enforcement actions.
The court ruling extends the government's five-year deadline for lawsuits to sanctions imposed by federal agencies such at the Federal Deposit Insurance Corp. and the Comptroller of the Currency.
That means agencies will be powerless to pursue bankers who violate laws or regulations after five years have elapsed from the day of the infraction.
"If we don't discover a violation before that five-year period has run out ... we lose our rights," said Ralph Sharpe, director of the Comptroller's enforcement and compliance division.
Petition Rejected
The U.S. Court of Appeals for the District of Columbia Circuit rejected a petition for rehearing in the case Tuesday. The March 4 opinion involved the Environmental Protection Agency, but all federal government agencies are affected.
Rich Ashton, associate general counsel at the Federal Reserve Board, said setting a five-year statute of limitations on administrative actions could cause a conflict when criminal cases are also being pursued, Mr. Ashton said. Often criminal cases are tried first, and those have a 10-year deadline.
Mr. Sharpe said in an interview Wednesday that the court ruling will kill some cases the OCC is developing now.
'More Egregious Cases'
The problems that take regulators five years to find, he noted, are "some of the more egregious cases."
He estimated that the court ruling will affect 10% to 15% of the OCC's cases, primarily civil money penalties and removals of bank officers.
"That number could be a lot higher," Mr. Sharpe said. "We don't really have an effective way to quantify this now."
Mr. Sharpe said the five-year deadline will squeeze the agencies because often it takes a few years to discover a problem and then a couple more to develop the case against the institution and its managers.
Worst-Case Scenario
Sometimes it takes a bank failure before problems are uncovered.
"We may not do civil money penalty until a bank fails and the final exam reveals misconduct that occurred three or four years earlier," Mr. Sharpe said.
"It cuts off ... enforcement actions by banking agencies," said David W. Roderer, a partner with the Winston & Strawn law firm in Washington.
When the Justice Department asked for a rehearing of the case, Mr. Roderer noted that the court's main finding was not appealed.
When to Start the Clock
Instead the Justice Department focused on when the statute of limitations should begin: the day the violation occurred or the day the government finds out about it. The D.C. circuit court insisted this week that the clock starts running on the date of the violation.
Ann S. DuRoss, assistant general counsel for appellate litigation at the FDIC, said regulators often base their enforcement actions on how much damage a violation produces.
But it takes time, sometimes years, to determine damages, she said. This new deadline could rob the regulators of the chance to collect fines.
