We are working on our policies and procedures on suspected criminal behavior by our employees and officers, which include terminating employment and notifying law enforcement. Are we required to formally report incidents of theft or embezzlement by a bank employee or officer to the FDIC?

Yes, we recommend reporting incidents of employee or officer crimes to your primary regulators (in your case, the IDFPR and the FDIC), although this is not always strictly required.

The FDIC’s SAR rules require banks to report “violations requiring immediate attention, such as when a reportable violation is ongoing” to its FDIC regional office. Even in cases that do not involve ongoing violations, we believe it is a best practice to inform your prudential regulator about any material incident of theft or embezzlement by a bank employee, officer or agent, particularly with respect to “any of the moneys, funds or credits” of the bank or “any moneys, funds, assets or securities entrusted to the custody or care” of the bank.

For resources related to our guidance, please see:

FDIC Regulations, 12 CFR 353.3(b)(2) (“In situations involving violations requiring immediate attention, such as when a reportable violation is ongoing, the bank shall immediately notify, by telephone, an appropriate law enforcement authority and the appropriate FDIC regional office (Division of Supervision and Consumer Protection (DSC)) in addition to filing a timely report.”)

FDIC Risk Management Manual of Examination Policies, Suspicious Activity and Criminal Violations

U.S. Criminal Code, 18 USC 656 (“Theft, embezzlement, or misapplication by bank officer or employee. Whoever, being an officer, director, agent or employee of, or connected in any capacity with any Federal Reserve bank, member bank, depository institution holding company, national bank, insured bank, branch or agency of a foreign bank, or organization operating under section 25 or section 25(a) of the Federal Reserve Act, or a receiver of a national bank, insured bank, branch, agency, or organization or any agent or employee of the receiver, or a Federal Reserve Agent, or an agent or employee of a Federal Reserve Agent or of the Board of Governors of the Federal Reserve System, embezzles, abstracts, purloins or willfully misapplies any of the moneys, funds or credits of such bank, branch, agency or organization or holding company or any moneys, funds, assets or securities entrusted to the custody or care of such bank, branch, agency, or organization or holding company or to the custody or care of any such agent, officer, director, employee or receiver, shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both; but if the amount embezzled, abstracted, purloined or misapplied does not exceed $1,000, he shall be fined under this title or imprisoned not more than one year, or both.”)