[Federal Register Volume 61, Number 244 (Wednesday, December 18, 1996)]
[Rules and Regulations]
[Pages 66830-66851]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 96-31837]



[[Page 66829]]

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Part III





Office of Government Ethics





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5 CFR Part 2640



Interpretation, Exemptions and Waiver Guidance Concerning 18 U.S.C. 208 
(Acts Affecting a Personal Financial Interest); Final Rule

Federal Register / Vol. 61, No. 244 / Wednesday, December 18, 1996 / 
Rules and Regulations

[[Page 66830]]



OFFICE OF GOVERNMENT ETHICS

5 CFR Part 2640

RIN 3209-AA09


Interpretation, Exemptions and Waiver Guidance Concerning 18 
U.S.C. 208 (Acts Affecting a Personal Financial Interest)

AGENCY: Office of Government Ethics (OGE).

ACTION: Final rule.

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SUMMARY: The Office of Government Ethics is issuing a final rule 
describing circumstances under which the prohibitions contained in 18 
U.S.C. 208(a) would be waived. Section 208(a) prohibits employees of 
the executive branch from participating in an official capacity in 
particular matters in which they, or certain persons or entities with 
whom they have specified relationships, have a financial interest. 
Section 208(b) of title 18 permits waivers of these prohibitions in 
certain cases. First, section 208(b)(1) permits agencies to exempt 
employees on a case-by-case basis from the disqualification provisions 
of section 208(a). Similarly, section 208(b)(3) permits agencies to 
waive, in certain cases, the disqualification requirement that would 
apply to special Government employees serving on a Federal advisory 
committee. Finally, under section 208(b)(2), the Office of Government 
Ethics has the authority to promulgate executive branchwide regulations 
describing financial interests that are too remote or inconsequential 
to warrant disqualification pursuant to section 208(a). This final 
regulation describes those financial interests. It also provides 
guidance to agencies on the factors to consider when issuing individual 
waivers under section 208 (b)(1) or (b)(3).

EFFECTIVE DATE: January 17, 1997.

FOR FURTHER INFORMATION CONTACT: Marilyn L. Glynn, Office of Government 
Ethics, telephone: 202-208-8000, TDD: 202-208-8025; FAX: 202-208-8037.

SUPPLEMENTARY INFORMATION:

I. Rulemaking History

    On September 11, 1995, the Office of Government Ethics (OGE) 
published for comment a proposed rule to establish exemptions under 18 
U.S.C. 208(b)(2) from the prohibition in the conflict of interest 
statute at section 208(a). See 60 FR 47208-47233 (part II of the 
September 11, 1995 daily FR issue). In part, the proposed rule also 
provided guidance to agencies on issuing individual waivers of the 
conflict of interest prohibition under 18 U.S.C. 208(b)(1) and (b)(3), 
and on interpreting section 208 generally.
    The proposed rule was issued pursuant to 18 U.S.C. 208(d)(2) which 
directs OGE, after consultation with the Attorney General, to adopt 
uniform regulations exempting financial interests from the 
applicability of section 208(a) for all or a portion of the executive 
branch, and to provide guidance on the types of interests that may be 
waived on an individual basis. Prior to 1989, the authority to 
promulgate regulations implementing the previous version of section 
208(b)(2) resided in the individual agencies as to their own respective 
employees. However, the Ethics Reform Act of 1989 (Pub. L. No. 101-
194), as amended, amended 18 U.S.C. 208 to eliminate the authority of 
individual agencies to adopt agencywide regulatory exemptions and 
granted branchwide authority to OGE.
    The Office of Government Ethics also published an interim rule on 
August 28, 1995 which established a single exemption under 18 U.S.C. 
208(b)(2) for financial interests that arise from Federal Government 
salary and benefits or from Social Security or veterans' benefits. See 
60 FR 44706-44709 (part IX of the August 28, 1995 daily FR issue). The 
interim rule, which became effective on the date of publication, was 
codified at that time at 5 CFR 2640.101. However, the exemption in the 
interim rule was also republished for consideration as part of the 
proposed rule at 5 CFR 2640.203(d) published on September 11, 1995. 
This single exemption is recodified in this final rule at 5 CFR 
2640.203(d). Comments received on the interim rule were consolidated 
with, and considered along with comments received on the proposed rule.
    The proposed rule and the interim rule each provided a 60-day 
comment period and invited comments by agencies and the public. Timely 
comments were received from 25 sources. After carefully considering all 
comments and making appropriate modifications, the Office of Government 
Ethics is publishing this final rule after consultation with the Office 
of Personnel Management and, pursuant to section 201(c) of Executive 
Order 12674, as modified by E.O. 12731, after obtaining the concurrence 
of the Department of Justice.

II. Summary of Comments

    All of the comments received were from executive branch Departments 
and agencies, including two from agency Inspectors General. Many 
commented on several different sections of the proposed rule. The 
Office of Government Ethics has considered each comment submitted by 
each commenter and those determined to be significant are discussed 
below in the context of the particular subparts or sections to which 
they pertain. We have not specifically discussed comments that were 
either generally laudatory or generally critical, either of style or of 
substantive content, or that offered editorial suggestions or 
suggestions regarding format that would not affect meaning. In 
addition, we have not specifically discussed comments that were plainly 
unreasonable or that exhibited a clear misunderstanding of the purpose 
or language of the proposed regulation or of section 208. The following 
comments fall within these latter categories: assertions that certain 
types of interests (such as Government securities) do not raise section 
208 implications for any Government employees; statements that certain 
exemptions insult Federal employees by suggesting that performance of 
official duties could violate a criminal law; and statements that 
section 208 applies only to particular matters involving specific 
parties. We have also not addressed comments that have been rendered 
inapplicable by changes to the regulation which have been made for 
other reasons, or that merely recommended revisions to examples 
describing agency programs. Finally, we have not addressed comments 
that call for a discussion of section 208 generally, but that are not 
related to any particular provision of the regulation.
    A number of commenters were generally satisfied with the approach 
taken in the proposed rule in describing the exemptions. Most of these 
commenters indicated that the rule as proposed would resolve some long-
standing issues and that it would address most of the situations in 
which agencies have been routinely issuing waivers under section 
208(b)(1) or (b)(3). A fewer number of commenters were generally 
critical of the rule, citing its complexity and its attempt to devise 
exemptions that apply in situations that do not concern a majority of 
executive branch employees. To address these concerns, some of the 
exemptions were rewritten to simplify language. For example, in certain 
provisions, the term ``direct or beneficial ownership'' was deleted and 
replaced simply with the term ``ownership.'' In other exemptions, the 
term ``any particular matter, whether of general applicability or 
involving specific parties,'' was replaced with the term ``any 
particular matter.'' Changes

[[Page 66831]]

of this type have been made to make the rule easier to understand, and 
are not intended to change a provision's substantive meaning from that 
proposed.
    In addition, a few proposed exemptions were eliminated to reduce 
the rule's complexity. The deleted exemptions would have been generally 
difficult to interpret and apply and did not appear to be relevant to a 
majority of employees. Each of these exemptions is discussed under the 
relevant subpart below.
    Certain other proposed exemptions were retained in this final rule 
even though they are not relevant to a large number of employees. 
Because individual agencies no longer have authority to issue their own 
exemptions, this exemption rule, where possible, must address conflicts 
issues that affect employees of only a few agencies.
    Finally, OGE, in adopting this final rule, has corrected a few 
typographical errors and made a few other minor clarifying revisions to 
the rule as proposed.

General Comments

    Some agencies made suggestions, or raised issues, about matters 
that did not concern any specific subpart or provision of the 
regulation. One agency recommended that the rule address when, or under 
what circumstances, an employee may engage in transactions (such as 
buying or selling stock) involving a financial interest upon which a 
particular agency matter will have a direct and predictable effect. The 
Office of Government Ethics has not made any change in the regulation 
to address this comment. Each exemption applies whether or not an 
employee is engaged in a transaction that would involve a financial 
interest affected by an agency matter in which the employee is 
participating.
    Another agency suggested that the Preamble accompanying the 
proposed rule be preserved as part of the final regulation and 
incorporated into the text of the regulation as published in the Code 
of Federal Regulations. The Office of Government Ethics has not adopted 
this suggestion since it would be inappropriate to incorporate 
narrative explanations of a rule into the text of the rule itself. 
However, agency ethics officials and others are free to consult the 
Preamble of the proposed rule when interpreting section 208.
    One agency asked OGE to explain how the exemptions are intended to 
``mesh'' with one another. The regulation permits an employee to apply 
or utilize all the exemptions that might be applicable in a particular 
situation. Thus, for example, an employee might be called upon to act 
in a particular matter affecting a certain company. He could act in the 
matter even if: (1) He owns $4,000 worth of stock in the company; (2) 
he owns two diversified mutual funds that are invested in the company; 
and (3) his general partner owns $100,000 worth of stock in the 
company.
    The Office of Government Ethics did not adopt one agency's 
suggestion to add a provision clarifying that the impartiality 
provisions in subpart E of the Standards of Ethical Conduct for 
Employees of the Executive Branch may be applied even when a regulatory 
exemption is applicable under this regulation. As the note in 5 CFR 
2635.501(b) indicates, the granting of a statutory waiver constitutes a 
determination that ``the interest of the Government in the employee's 
participation outweighs the concern that a reasonable person may 
question the integrity of agency programs and operations.''
    Finally, one agency requested that the final rule become effective 
no sooner than three months after the date of publication so the agency 
has adequate time to inform employees of the rule's existence and to 
conduct training for employees. The Office of Government Ethics does 
not agree that the rule needs a three-month effective date. Agency 
programs and operations will not be harmed if employees are unaware of 
the rule's existence on the date it becomes effective. Employees who 
have not yet been informed of the exemptions that are applicable to 
them will simply continue to disqualify themselves from matters 
affecting their financial interests until they are advised of the 
rule's provisions. And, in any case, agencies will no doubt apprise 
their employees promptly of the final rule once it becomes effective.

Subpart A--General Provisions

Section 2640.102  Definitions
    One agency objected to proposed definitions that cross-reference 
statutes unrelated to ethics considerations. The agency recommended 
keeping each definition self-contained so that employees do not have to 
consult other sources to determine if an exemption applies. The Office 
of Government Ethics has not adopted this recommendation. Reiterating 
the text of the cross-referenced statutes would complicate and lengthen 
the regulation considerably. On the other hand, paraphrasing the 
language of the statutes might create ambiguity about the meaning of 
certain definitions. Because this regulation establishes exemptions 
from a criminal statute, the exemptions need to be described with 
specificity.
    An agency stated that the term ``institution of higher education'' 
did not need to be defined at Sec. 2640.102(g) as renumbered because it 
has a commonly-understood meaning. The Office of Government Ethics 
disagrees. The exemptions relating to such institutions (Sec. 2640.203 
(b) and (c)) are intended to apply in the case of colleges and 
universities, and other similar post- secondary institutions. Not all 
post-secondary institutions are encompassed by the definition 
referenced at Sec. 2640.102(g). For example, profit-making post-
secondary institutions are not included in the definition of 
``institution of higher education'' at 20 U.S.C. 1141(a).
    No changes have been made in this final regulation to address a 
concern expressed by one agency that the definition of ``publicly 
traded security'' at Sec. 2640.102(p) as proposed inadvertently 
excludes securities issued by Government entities such as the 
Government National Mortgage Association. Most executive branch 
employees would not have a disqualifying financial interest in 
Government securities. In the case of employees who do have a 
disqualifying financial interest, however, the Office of Government 
Ethics could not determine that a regulatory exemption applicable to 
every such employee would be appropriate.
    Technical corrections have been made to the proposed definitions of 
``long-term Federal Government security'' and ``short-term Federal 
Government security'' at Sec. 2640.102(i), as renumbered and 
Sec. 2640.102(s). In addition, changes have been made in the proposed 
definition of the term ``diversification'' to reflect changes made in 
the exemptions at Sec. 2640.201, discussed below. Finally, the term 
``unit investment trust'' at renumbered Sec. 2640.102(u) also has been 
revised to accommodate changes made in the definition of the term 
``diversification.'' The revision, however, does not change the 
substantive meaning of the term ``unit investment trust.''
Section 2640.103  Prohibition
    Two agencies questioned why the exemptions were not proposed to be 
added to 5 CFR 2635.402 of the Standards of Ethical Conduct for 
Employees of the Executive Branch, and why language from that provision 
is repeated in the exemption rule. The Office of Government Ethics 
considered consolidating the exemptions and

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interpretations of section 208 in either part 2635 or part 2640. 
However, changes could not be made to part 2635 without significantly 
altering the integrity of that part. On the other hand, the language of 
Sec. 2635.402 could not be repeated verbatim in part 2640 since much of 
it deals with the implementation of other parts of the Standards of 
Ethical Conduct. Accordingly, OGE decided to repeat in part 2640 as 
proposed and, as issued as a final rule in this rulemaking document, 
those parts of Sec. 2635.402 that are relevant to the overall 
implementation of section 208. Where language between the two 
provisions varies, no differences in interpretation are intended. 
However, OGE intends to review the text of Sec. 2635.402 to determine 
whether any language is substantively inconsistent with part 2640 and 
make any appropriate modifications.
    One agency criticized OGE for describing in the proposed rule 
certain particular matters as ``particular matters of general 
applicability'' and stated that use of the term would needlessly 
confuse employees. On the other hand, the agency agreed that the term 
``particular matters involving specific parties'' is an established and 
useful concept. Another agency stated that different exemptions for 
different types of matters (i.e. those involving parties and those 
without parties) are unnecessary. The Office of Government Ethics 
believes that, in certain circumstances, different exemptions are 
warranted for matters that do not involve specific parties. Agencies 
currently take these distinctions into account when issuing individual 
waivers under section 208(b)(1), and it is reasonable to establish 
somewhat broader regulatory exemptions for nonparty particular matters. 
To address concerns about the meaning of the term particular matter of 
general applicability, OGE has added a definition, at Sec. 2640.102(m) 
of this final rule, describing such matters as those which are focused 
on the interests of a discrete and identifiable class of persons, but 
do not involve specific parties.
    One agency noted that it has identified certain classes of matters 
that are not particular matters because they are not sufficiently 
focused on the interests of a discrete and identifiable class of 
persons, even though the matters may have some collateral effect on 
identified persons. The agency asked that OGE identify other matters 
that are not focused enough to be considered particular matters. In the 
absence of specific facts, OGE is unable to identify such matters. For 
example, although the agency asserted that basic research is not a 
particular matter, OGE believes that a grant to a university to conduct 
such research is a particular matter. Without sufficient specificity of 
this type, it would be misleading to state conclusively that certain 
Government activities or operations are not particular matters.
    Several agencies commented on the examples in proposed 
Sec. 2640.103 that illustrate various terms in section 208. One agency 
stated that Example 8 following Sec. 2640.103(a)(1) incorrectly 
suggests that legislation can never constitute a particular matter; 
another suggested that a certain provision dealing with charges for 
prescription drugs that is in a larger piece of health care legislation 
is not a particular matter because it affects everyone in the United 
States. The Office of Government Ethics does not disagree that some 
legislation is narrowly focused on the interests of a discrete and 
identifiable class of persons, and would therefore be a particular 
matter. For example, where a particular provision in a larger piece of 
legislation focuses specifically on the regulation of prescription drug 
prices, the provision is focused on the interests of pharmaceutical 
companies, physicians, and pharmacies and would thus constitute a 
particular matter.
    One agency asked that OGE revise Example 2, and eliminate Example 
3, following Sec. 2640.103(a)(3) as proposed. Because the requested 
revision would change the concept Example 2 was intended to illustrate, 
the Office of Government Ethics did not adopt this suggestion. For 
similar reasons, OGE did not eliminate Example 3. Although the 
commenting agency stated that the situation depicted in the example is 
not wholly realistic, OGE believes the example provides a reasonable 
illustration of the meaning of the term ``direct and predictable 
effect.'' At the suggestion of another agency, OGE revised Example 4 
following Sec. 2640.103(a)(3) to more clearly illustrate the concept 
that section 208 applies when the Government matter has a direct and 
predictable effect on the employee's financial interest.
    The Office of Government Ethics did not adopt one agency's request 
that the regulation define the term ``general partner.'' The term 
``general partner'' does not have a special or unique meaning for 
purposes of section 208. The term has a generally accepted meaning 
within the area of partnership law.
    Finally, one agency suggested that OGE revise proposed 
Sec. 2640.103(e) to include a statement noting that resignation from an 
outside position can end a disqualifying financial interest. The Office 
of Government Ethics has not revised the provision in this final rule 
because the current language of Sec. 2640.103(e) encompasses 
divestiture of ``other interest[s]'' that cause disqualification from 
participation in a particular matter.

Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)

Section 2640.201  Exemptions for Interests in Mutual Funds, Unit 
Investment Trusts, and Employee Benefit Plans
Common Trust Funds
    As proposed, the regulation at Sec. 2640.201(a) contained an 
exemption for diversified common trust funds. The term ``diversified'' 
was defined in reference to a regulation of the Office of the 
Comptroller of the Currency, 12 CFR 9.18, which required common trust 
funds maintained by State or national banks to be diversified. On 
December 21, 1995, the Office of the Comptroller of the Currency (OCC) 
published a proposed rule that would eliminate the diversification 
requirement for common trust funds. See 60 FR 66163, 66170. The 
Preamble to the proposed rule states that the ``* * * restrictions have 
at times interfered with optimal management of common trust funds * * 
*.'' Id. at 66170. If the revised regulation OCC becomes effective, 
there will no longer be any assurance that common trust funds will 
contain any particular number or types of assets. In the absence of any 
other standardized way of determining whether such funds will be even 
minimally diversified, the Office of Government Ethics cannot conclude, 
as a regulatory matter, that an employee's interest arising from a fund 
will be remote and inconsequential. Accordingly, the exemption for 
common trust funds has been deleted from this final rule.
Diversified Mutual Funds
    Four agencies stated that the exemption for diversified mutual 
funds proposed at Sec. 2640.201(a) was too complicated for the average 
employee to apply or for ethics officials to implement. As proposed, 
the exemption would have applied to mutual funds that are diversified 
management companies as defined in the Investment Company Act of 1940, 
15 U.S.C. 80a-5(b)(1). Of the four commenters, one recommended simply 
leaving the term ``diversified'' undefined; the second advocated 
dropping any diversification requirement; the third recommended linking 
the definition of diversification

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to sector mutual funds; and the fourth recommended that the exemption 
apply simply to publicly traded mutual funds.
    Six agencies expressed particular concern that the proposed 
definition of diversified mutual fund (as well as the definition for 
diversified common trust fund, unit investment trust, and employee 
benefit plan) would not be consistent with the definition of Excepted 
Investment Fund (EIF), as that term is used for purposes of financial 
reporting. These agencies expressed the view that employees would be 
confused and frustrated by dealing with different definitions of 
diversification. Three of the agencies suggested that we modify EIF 
reporting requirements to make them consistent with the diversification 
standards in the exemption rule. Another agency suggested that the EIF 
standards be adopted in the exemption rule, while a third agency 
expressed no preference for either approach as long as the standards 
would be made consistent.
    Based on these concerns, the Office of Government Ethics has 
decided to revise the definition of ``diversified'' as that term is 
used in Sec. 2640.201(a) in connection with mutual funds. Accordingly, 
the term ``diversified'' in Sec. 2640.102(b) of this final rule now 
states that ``diversified means that the fund * * * does not have a 
stated policy of concentrating its investments in any industry, 
business, single country other than the United States, or bonds of a 
single State within the United States.'' In other words, the exemption 
for diversified mutual funds applies to all mutual funds except sector 
funds. An agency employee or ethics official can determine if a fund is 
a sector fund by reading the prospectus, or by calling a broker or fund 
manager. Often, it is possible to learn whether a fund is a sector fund 
simply from the fund's name (i.e. Vanguard Specialized Portfolios: 
Healthcare). In any event, a fund's concentration policy, if any, is 
required under Securities and Exchange Commission (SEC) regulations to 
be described in the prospectus.
    The Office of Government Ethics has not, however, revised the 
definition of the term ``mutual fund'' as proposed at Sec. 2640.102(l) 
and which is now in renumbered Sec. 2640.102(k)). In order for the 
exemption to apply, the mutual fund must still be a true fund, i.e. a 
management company registered under the Investment Company Act of 1940, 
as amended, 15 U.S.C. 80a-1 et seq. Informal collections of stocks, 
bonds and similar holdings, such as family trusts, are not mutual funds 
because they are not registered management companies.
    The Office of Government Ethics has not adopted recommendations to 
make the definition of the term diversified mutual fund the same as the 
definition of Excepted Investment Fund (EIF) as that term is used in 5 
CFR 2634.310(c) for purposes of financial reporting. As explained in 
the Preamble to the proposed rule, using the numerical standards of the 
EIF definition (no more than 5% of a fund's portfolio invested in any 
one issuer nor more than 20% in any particular economic or geographic 
sector) would be impractical and burdensome because mutual fund assets 
continuously change and because employee participation in particular 
matters typically occurs on continuing basis over time. Use of a 
numerical standard is not a problem for purposes of financial reporting 
because whether an asset is an EIF for those purposes is a 
determination that must be made only once a year. And, relying on the 
alternative definition of the term Excepted Investment Fund (i.e. that 
the fund is publicly traded) does not advance conflicts of interest 
concerns because publicly traded assets may still raise questions about 
conflicts of interest. The Office of Government Ethics has not yet 
determined whether it will seek to revise the definition of Excepted 
Investment Fund to correspond with the term diversified mutual fund as 
it is used in this regulation. Any such revision might require 
Congressional action, since the standards for determining whether a 
widely held investment fund is an Excepted Investment Fund are 
statutory. See 5 U.S.C. app., section 102(f)(8) of the Ethics in 
Government Act.
    Two agencies objected to the fact that the exemption for 
diversified mutual funds was proposed to apply to employees of all 
agencies. One agency recommended that the rule permit individual 
agencies to decide whether to allow employees of their agencies to 
apply the mutual fund exemption. The other agency suggested that it be 
allowed to limit applicability of the exemption where the fund is an 
international regional fund (e.g. the Pacific Basin Fund) and the 
employee has duties focused on the region in question. The Office of 
Government Ethics has not revised Sec. 2640.201(b) in this final rule 
in response to these comments. OGE believes it is inappropriate to 
permit certain agencies to limit the applicability of these exemptions. 
The exemptions are devised with the assumption that the financial 
interests described are ``remote or inconsequential'' in the case of 
all executive branch employees. Of course, particular agencies might 
want to consider whether they wish to prohibit the holding of certain 
sector funds by employees in their agency supplemental standards of 
ethical conduct regulations. See 5 CFR 2635.105.
Sector Mutual Funds
    Six agencies commented on various aspects of Sec. 2640.201(b) of 
the proposed rule dealing with sector mutual funds. Of these, one 
agency specifically endorsed the definition of ``sector mutual fund'' 
as that term is used in proposed Sec. 2640.201(b). Another agency, 
however, characterized the proposed definition as too imprecise, and 
appeared to recommend that OGE devise a numerical standard for 
determining whether a fund concentrates in a particular sector. The 
Office of Government Ethics did not adopt this suggestion. Because fund 
managers often buy and sell holdings on a daily basis, it would be 
practically impossible for employees to determine the composition of a 
particular fund with any certainty on a particular date. Moreover, 
determining whether a fund meets the present definition of sector 
mutual fund should be less burdensome for employees because it does not 
require them to undertake any numerical calculations. Employees simply 
have to determine whether the fund has a policy of concentration. As 
discussed above, SEC regulations require a mutual fund manager to 
disclose such a policy, if any, in the fund's prospectus.
    Two other agencies stated that sector mutual funds should be 
totally exempt from the prohibition in section 208. These agencies 
argued that the proposed exemption for sector funds is too difficult to 
administer and would effectively bar employees from investing in sector 
funds with holdings related to the activities of their agencies. Both 
agencies theorized that other agencies that disagreed with their 
proposed approach could simply bar employees, in their agency 
supplemental standards regulations, from holding sector funds. The 
Office of Government Ethics has not adopted these recommendations, 
since OGE cannot reasonably determine that the interests of every 
executive branch employee in the holdings of a sector mutual fund are 
remote and inconsequential for every particular matter in which he or 
she might participate. For example, an employee of an executive branch 
agency who invests in an energy-related sector fund might direct his 
staff to draft a regulation rescinding certain requirements relating to 
the disposal of hazardous waste materials. The effect of

[[Page 66834]]

the new regulation would be to significantly reduce outlays that 
utility companies have to make to comply with regulatory requirements. 
As a result, the companies' profits would increase, and the 
corresponding value of funds that invest in the companies would also 
increase. Under these circumstances, OGE could not say that the 
employee's interest would be remote or inconsequential. Of course, the 
section 208 issue would not arise if the holding was prohibited by an 
agency supplemental regulation. However, OGE cannot compel agencies to 
adopt, in their supplemental agency standards regulations, prohibitions 
on holding sector mutual funds. Moreover, many agencies do not choose 
to issue supplemental standards.
Employee Benefit Plans
    A few agencies submitted comments on the proposed exemption for 
employee benefits plans at Sec. 2640.201(c). The Office of Government 
Ethics did not adopt one agency's suggestion that the requirement for 
an independent trustee in Sec. 2640.201(c)(1)(iii)(A) as proposed be 
eliminated. The Office of Government Ethics believes that a plan's 
trustee should be independent of the plan's sponsor, or at least be a 
registered investment advisor, to insure that investment selections are 
made without regard to the plan sponsor's relationship with the 
employee.
    Two agencies objected to the inclusion of the Thrift Savings Plan 
for Federal employees in the list of employee benefit plans covered by 
the exemption at proposed Sec. 2640.201(c). One of the agencies stated 
that the class of persons affected by a matter which involves the 
Thrift Plan is so large that any such matter could not be considered a 
particular matter. The Office of Government Ethics does not agree with 
this view. Employees who have invested in the Thrift Savings Plan are a 
discrete and identifiable class of persons for purposes of section 208. 
The agency alternatively argued, as did one other agency, that the 
Thrift Plan would be covered by the exemption for interests arising 
from Government salary and benefits at Sec. 2640.203(d) as proposed. 
While OGE does not disagree that the Thrift Plan would be covered by 
the exemption at Sec. 2640.203(d), to avoid any misunderstanding, OGE 
has not revised the regulation in this regard in adopting it as final. 
In particular, since the exemption at Sec. 2640.201(c)(1)(i) applies 
specifically to the underlying holdings of the Thrift Plan, OGE would 
prefer to retain the exemption to resolve any questions employees may 
have on the issue.
    Another agency requested that OGE add an exemption for a separate 
investment plan the agency maintains for its employees. A number of 
agencies have such investment plans. The Office of Government Ethics 
believes that it would be impractical to list all such plans, and 
considers them covered by the exemption at Sec. 2640.203(d). In 
response to a question from the same agency, OGE confirms that employee 
benefit plans that meet the definition at Sec. 2640.102(c) are covered 
by the exemption even if they are not covered by the Employee 
Retirement Income Security Act of 1974 (ERISA). Also, OGE confirms that 
participation in selecting trustees and investment managers does not 
constitute selection of plan investments for purposes of 
Sec. 2640.201(c)(1)(iii)(A). Finally, the same agency asked OGE to 
establish a new exemption for the sponsors of defined benefit plans 
administered by an independent trustee and guaranteed by the Pension 
Benefit Guaranty Corporation (PBGC). The Office of Government Ethics 
did not add a new exemption in response to this request. First, where a 
plan sponsor has defaulted on pension payments, the PBGC may not pay 
employees the full amount due under the pension, and the payments 
employees do receive may be delayed, causing financial harm to the 
beneficiaries. Under the circumstances, OGE cannot conclude 
definitively that an employee's interest in payment of defined benefit 
is remote and inconsequential even when the pension is guaranteed by 
the PBGC.
Section 2640.202  Exemptions for Interests in Securities
De Minimis Exemptions for Interests of Employee, Spouse, and Minor 
Children
    A total of thirteen agencies made a number of general comments 
about the de minimis exemptions at Sec. 2640.202 (a)-(c), as proposed. 
One agency stated that the three-tiered system of exemptions was 
reasonable; two other agencies stated that three different de minimis 
exemptions would create confusion and recommended that OGE eliminate at 
least Sec. 2640.202(b). Two agencies suggested that the de minimis 
amounts be raised. Of these, one agency emphasized that the de minimis 
amounts should be higher for special Government employees. Five 
agencies stated that the de minimis amounts should be lower. Of these, 
one recommended that the exemption for party matters at 
Sec. 2640.202(a) be lowered to $1,000; a second agency suggested that 
OGE allow individual agencies to lower the de minimis amounts for 
employees who serve on procurement boards; a third agency made a 
suggestion for similar authority for regulatory agencies. A fourth 
agency suggested that the de minimis amounts be set on a sliding scale 
according to an employee's net worth and that the exemption for matters 
of general applicability in Sec. 2640.202(c), as proposed, should be 
conditioned on the employee's interest not being affected in a 
disproportionate manner.
    Four agencies objected to the fact that de minimis amounts proposed 
did not match the categories of value listed on the public financial 
disclosure statement (SF 278). Two of these agencies alternatively 
recommended that OGE revise the financial disclosure statement to 
correspond with the de minimis amounts. A fifth agency was satisfied 
with the de minimis amounts, but recommended that the SF 278 form be 
revised to add a box that employees could check indicating whether a 
particular holding was in excess of $5,000, $25,000, or $50,000. In 
general, the agencies that commented on the lack of uniformity between 
the SF 278 and the de minimis amounts proposed expressed concern about 
having to contact employees about the value of their holdings before 
certifying the disclosure form. In addition, one Office of Inspector 
General stated that the de minimis exemptions would interfere with the 
ability to conduct investigations because investigators would have to 
contact an employee early in the investigatory process to determine the 
value of his holdings before deciding to continue an investigation.
    The Office of Government Ethics has carefully considered these 
comments, and has decided to make one change to the three basic de 
minimis exemptions as proposed at Sec. 2640.202 (a)-(c). Section 
2640.202(b), as proposed, would have established an exemption for 
employees participating in a particular matter involving specific 
parties where the financial interest arises from the ownership of 
securities issued by an entity that is not a party to the matter. After 
evaluating the comments concerning the overall complexity of the 
regulation, as well as comments on proposed Sec. 2640.202(b) 
specifically, the Office of Government Ethics has deleted the separate 
exemption proposed for disqualifying financial interests arising from 
ownership of securities issued by nonparties. Accordingly, this final 
regulation contains two basic de minimis exemptions: A $5,000 de 
minimis exemption (at Sec. 2640.202(a)) for

[[Page 66835]]

interests arising from the ownership of securities issued by an entity 
that is affected by a particular party matter; and a $25,000/$50,000 de 
minimis exemption (at Sec. 2640.202(b)) for interests arising from the 
ownership of securities issued by an entity affected by a particular 
matter of general applicability. The latter exemption also contains a 
provision exempting interests arising from the ownership of no more 
than $50,000 of long-term Federal Government securities, discussed 
below.
    The elimination of proposed Sec. 2640.202(b) will address concerns 
that the rule's complexity prevents employees from determining when a 
particular exemption applies. It also avoids the problem of forcing 
agencies to determine when a specific entity becomes a party to a 
particular matter. Interests in non-parties will be addressed in the 
$5,000 exemption at Sec. 2640.202(a), which has been revised to extend 
coverage to interests arising from ownership of securities issued by 
both parties and by non-parties. As revised, the exemption applies to 
security interests in entities that are ``affected by'' the particular 
party matter. Of course, individual waivers under section 208 (b)(1) or 
(b)(3) can be issued to address situations where interests in excess of 
$5,000 are appropriate subjects for a waiver.
    The Office of Government Ethics has not adopted other agency 
recommendations to either raise or lower the de minimis amounts from 
the levels proposed. As the variety of the comments on this issue 
indicates, the appropriate level of a de minimis exemption is 
necessarily a subjective determination about which reasonable people 
can disagree. The amounts chosen are the maximum that OGE believes can 
reasonably be considered ``remote or inconsequential'' for any 
executive branch employee acting in a particular matter. As noted in 
the Preamble to the proposed rule, OGE will periodically review the 
specific dollar thresholds as well as other aspects of this regulation.
    Moreover, although the comments indicate there is no consensus on 
the amounts that would be appropriate, or to whom the exemptions should 
apply, they demonstrate the need for uniform exemptions for all 
executive branch employees. Accordingly, in this final rule OGE has not 
revised the regulation as proposed to establish different exemption 
amounts based on the responsibilities of employees or on a particular 
agency's mission. In the absence of uniformity, reliance on an 
exemption by an employee might suggest that the employee is acting less 
impartially than another employee for whom the exemption is not 
available. In addition, establishing different exemption amounts for 
different groups of employees would only add to the rule's complexity.
    The Office of Government Ethics did not agree with the suggestion 
that the exemption amounts should be higher for special Government 
employees (SGE). Like regular employees, special Government employees 
have a responsibility to act in the public's interest and to ensure 
that their participation in official Government matters is not 
influenced by their personal financial interests. Interests arising 
from the ownership of securities are likely to present as much of a 
conflict for SGEs as for regular employees. Moreover, individual 
waivers may be issued for SGEs serving on advisory committees under 
section 208(b)(3) or for any SGE under section 208(b)(1).
    While OGE agrees it is unfortunate that the exemption amounts and 
the categories of value on the financial disclosure statement (SF 278) 
are not consistent, OGE does not have the authority to change the 
categories on the form, which are required by statute, to match the 
values of the exemption. Although the basic exemption amount at 
Sec. 2640.202(a) could have been set to conform to a SF 278 category of 
value, the exemption would have to have been set at either $1,000 or 
$15,000. In OGE's view, the former amount is too low to be of much use 
to employees utilizing the exemptions, while the latter amount is too 
high to be considered ``remote or inconsequential'' in every case. 
Additionally, since the holdings of an employee, his spouse and child 
must be aggregated to determine whether the exemptions apply, it would 
be virtually impossible to have reconciled the de minimis amounts to 
the SF 278 categories. The same problem would arise in connection with 
the exemption at Sec. 2640.202(b), as renumbered, because the 
employee's holdings in all affected entities must be aggregated to 
determine if the exemption applies. After the exemption rule has been 
in effect for long enough to permit agencies and employees to gain 
experience in applying the rule, OGE intends to evaluate any problems 
that might interfere with the efficient application of the rule. If 
warranted, at that time OGE will consider whether it should seek 
legislation to reconcile the financial reporting system and the 
exemptions.
    Two agencies recommended that the exemptions proposed in 
Sec. 2640.202 (a) and (b), as renumbered, be expanded to apply to not 
only the interests of the employee, his spouse and minor children, but 
to those of all persons listed in section 208 (such as the employee's 
general partner and person with whom he has an arrangement for future 
employment). The Office of Government Ethics has not adopted this 
recommendation. Other provisions in the rule provide broader exemptions 
for the interests of some of these persons (for example, Sec. 2640.202 
(c), (d) and (e)). It would complicate the rule to duplicate coverage 
for these persons in Sec. 2640.202 (a) and (b), as renumbered, since 
employees would have to decide which, or how many, exemptions apply to 
the interests of those persons.
    One agency complained that the rule as proposed did not provide 
clear guidance about what an employee should do when the value of his 
holdings rises above the de minimis amounts during the course of his 
participation in a particular matter. The agency suggested that an 
employee should be required to value his holdings once a year, and then 
have 45 days to take steps to resolve any disqualifying financial 
interest before having to disqualify himself from participation in 
particular matters. The Office of Government Ethics has not revised the 
rule to address this comment. Example 3 following Sec. 2640.202(a) 
describes an employee's obligation once he knows the value of his 
holdings has risen above the de minimis levels.
    Under Secs. 2640.102(r) and 2640.202 of the rule, a mutual fund, 
including a sector mutual fund, is considered a publicly traded 
security for purposes of the various de minimis exemptions. The 
Preamble of the proposed rule indicated that for purposes of 
determining whether a de minimis exemption applies in the case of a 
mutual fund, the value of the employee's interest would be the value of 
his interest in the fund as a whole, not the pro rata value of any 
underlying holding of the fund. The Office of Government Ethics 
proposed this valuation method primarily because the holdings of most 
mutual funds change frequently and it would be infeasible for an 
employee to calculate the value of an affected holding at the point he 
might act in a particular matter. And moreover, in many cases an 
employee's interest in the sector as a whole is really a more accurate 
measure of his interest in the particular matter. However, three 
agencies objected to this proposed valuation method and stated that the 
value of the underlying holding should determine whether the de minimis 
amount is exceeded. The agencies pointed out that an employee,

[[Page 66836]]

consistent with the de minimis exemption at Sec. 2640.202(a), could 
participate in a party matter affecting a company in which he owns 
$5,000 worth of stock, but would be barred from participating in the 
same matter if he owned $6,000 in a sector mutual fund whose 
proportionate holding in the same company is $50. The Office of 
Government Ethics agrees that the value of the affected underlying 
holding may sometimes be a more precise measure of whether an 
employee's financial interest is remote or inconsequential within the 
meaning of section 208, but remains concerned that an employee cannot 
accurately determine the value of an underlying holding at the time of 
his proposed participation because mutual fund assets are bought and 
sold so frequently. Moreover, interpreting the exemption to apply to 
the value of the fund as a whole is not inherently unfair since, in 
many cases, an employee's interest in the entire sector may be a more 
accurate measure of the value of his interest in the matter. 
Additionally, OGE is sensitive to concerns expressed by other 
commenters about devising exemptions that are unduly complicated. On 
balance, OGE believes the rule will be fairer and easier to implement 
if the $5,000 exemption applies to the value of the sector fund as a 
whole. Of course, individual waivers under section 208(b)(1) may be 
issued to employees whose mutual fund is in excess of $5,000. And, if 
agencies report difficulties in implementing the de minimis provisions 
as they apply to sector mutual funds, OGE will reconsider the issue.
Interests in Federal Government Securities
    One agency questioned why there should be any distinction between 
long- and short-term Government securities for purposes of the 
exemptions. The Office of Government Ethics, in consultation with the 
Department of Justice, has concluded that employees whose duties 
concern setting interest rates or formulating monetary policy may have 
the potential for more significant gains or losses arising from the 
ownership of long-term Government securities. Therefore, the exemption 
for those securities is narrower than the exemption for short-term 
Government securities. At the request of another agency, OGE expanded 
the exemption at Sec. 2640.202(b), as renumbered, for long-term Federal 
Government securities to $50,000. As requested by the same agency, OGE 
added an exemption for U.S. Savings bonds at Sec. 2640.202(c), as 
renumbered. Corresponding changes to the definition of ``long-term 
Federal Government security'' have been added to Sec. 2640.102(i), as 
renumbered, and a definition of ``U.S. Savings bond'' has been added at 
Sec. 2640.102(v). Although interests in these Federal Government 
securities do not create a disqualifying financial interest for most 
employees, these exemptions will be available for those employees of 
the Department of the Treasury, the Federal Reserve, and similar other 
agencies where duties may create a disqualifying financial interest.
Interests of Tax Exempt Organizations
    Four agencies commented on the exemption for the interests of tax 
exempt organizations in proposed Sec. 2640.202(e), now renumbered as 
Sec. 2640.202(d). One agency stated that the exemption should apply to 
the securities holdings of all companies, whether or not they are 
nonprofit; another thought it should apply to the interests of 
nonprofits that are tax exempt under other subparts of 26 U.S.C. 
501(c), in particular section 501(c)(4). The Office of Government 
Ethics originally devised this exemption in response to requests from 
agencies who stated that they routinely issue individual waivers to 
employees serving on the boards of various nonprofits, particularly 
colleges and universities. Interests arising from the holdings of other 
types of companies the employee serves as officer, director, trustee or 
employee are better handled on an individual basis through a waiver 
under section 208 (b)(1) or (b)(3). However, OGE has revised the 
regulation to include nonprofit organizations that are tax exempt under 
either 26 U.S.C. 501 (c)(3) or (c)(4).
    Two agencies objected to limiting the exemption proposed, at 
renumbered Sec. 2640.202(d), to situations where the affected holdings 
amount to no more than 20% of the organization's portfolio. One of the 
agencies pointed out that an employee would have to be recalculating 
percentages during the course of his participation in a matter to 
ensure that the 20% limitation was not exceeded. The Office of 
Government Ethics agrees, and has accordingly revised the regulation in 
adopting it in final form.
    One agency suggested that OGE delete the proposed requirement that 
an employee must be an unpaid officer, director, or trustee for the 
exemption to apply. OGE did not adopt this recommendation because it 
believes such situations should be handled on an individual basis under 
the waiver provisions at section 208 (b)(1) or (b)(3). However, OGE 
wishes to clarify that receipt of travel reimbursement (or 
reimbursement of other similar types of expenses) from an organization 
would not be considered a form of pay for purposes of this exemption. 
Finally, OGE disagrees with an agency which suggested that the 
exemption is an unnecessary change from past OGE practice in handling 
interests of organizations an employee serves as officer, director, or 
trustee. To the extent that OGE has not required recusal or individual 
waivers for such an employee, it has assumed that the employee had no 
knowledge of the organization's investments.
Interests of General Partners
    The Office of Government Ethics did not adopt one agency 
recommendation to broaden the proposed exemption at Sec. 2640.202(e), 
as renumbered, to include any interest of an employee's general partner 
as long as it is not related to the partnership. That approach would 
amount to eliminating the interests of general partners from coverage 
under section 208, which is a legislative function. For similar 
reasons, OGE also did not adopt an agency recommendation to exempt all 
the interests of an employee's general partner in cases where the 
employee is a limited partner. Finally, OGE does not agree with one 
agency's contention that section 208 has no applicability to an 
employee's general partners if the employee is only a limited partner. 
It also does not agree with the suggestion of that agency, and of one 
other agency, that an exemption should apply to all the interests of an 
employee's general partner where the employee is a limited partner in a 
partnership with more 15 limited partners. The Office of Government 
Ethics cannot say with any certainty that all such interests are 
``remote or inconsequential'' enough to warrant automatic exemptions 
for all employees under this regulation.
Section 2640.203  Miscellaneous Exemptions
Hiring Decisions
    Four agencies commented on proposed Sec. 2640.203(a). Two agencies 
stated that Sec. 2640.203(a) is unnecessary and confusing and should be 
omitted from the final rule. The Office of Government Ethics disagrees. 
The provision was included at the request of an agency that is 
routinely involved in hiring new employees with significant financial 
interests in corporations. Hiring in some of these cases significantly 
impacts the financial interests of the former private sector employer 
and the exemption will provide those employees involved in

[[Page 66837]]

the hiring with assurance that section 208 will not be violated.
    One agency suggested that OGE define the term ``hiring decisions.'' 
The Office of Government Ethics decided not to define the term so that 
the provision, given the common understanding of the term, will be 
broad enough to cover various stages of the hiring process. One agency 
recommended that OGE define the term ``vested pension plan'' or delete 
the word ``vested.'' In order to simplify the provision, the Office of 
Government Ethics has decided to delete the word ``vested.''
Employees on Leave From Institutions of Higher Education
    Two comments were received regarding Sec. 2640.203(b) as proposed. 
One agency commented that the exemption will be very helpful to 
agencies that recruit a large number of noncareer appointees from the 
private sector. Another agency stated that many employees will benefit 
from the application of the exemption. Both agencies recommended that 
Sec. 2640.203(b) be broadened. One recommended that the exemption 
include nonprofit employers such as medical institutions and other 
nonprofit entities. The other agency requested that the exemption also 
include State and local governmental entities. The Office of Government 
Ethics has not changed this provision. The exemption was proposed for 
inclusion primarily at the request of agencies who hire large numbers 
of persons whose principal employers are universities, which commonly 
grant leaves of absence. There is no indication that agencies must 
routinely address conflicts of interest questions involving employees 
who are on leaves of absence from other nonprofit entities or from 
State or local governments.
Multi-Campus Institutions of Higher Education
    One agency commented on proposed Sec. 2640.203(c). No changes have 
been made in the regulation to address the agency's concern that the 
exemption include participation in matters affecting the State that 
operates the institution. In a formal advisory opinion (82 OGE 1, 
February 12, 1982), as published in ``The Informal Advisory Letters and 
Memoranda and Formal Opinions of the United States Office of Government 
Ethics'' 851 (1979-1988), OGE stated that the interests of a university 
will not be imputed to the State that operates the institution. 
Accordingly, no exemption would be necessary. The same agency commented 
on the note which followed Sec. 2640.203(c) as proposed. The agency 
questioned why it would be necessary to determine whether State 
institutions constitute a State ``system.'' To further simplify the 
rule, OGE has decided to eliminate the note.
Financial Interests Arising From Federal Government Employment or From 
Social Security or Veterans' Benefits
    Thirteen comments were received concerning recodified and 
renumbered Sec. 2640.203(d), which was published as an interim rule at 
Sec. 2640.101 in the Federal Register on August 28, 1995 (60 FR 44706, 
44709). One general comment, made by four agencies, expressed concern 
regarding the decision to treat financial interests that arise from 
Government salary and employment as disqualifying under 18 U.S.C. 
208(a). The Office of Government Ethics understands these concerns. 
However, for reasons discussed in the Preamble of the interim rule, OGE 
has decided not to change the position adopted by this Office in 
consultation with the Department of Justice. Most of the potential 
adverse effects of treating these interests as disqualifying are 
mitigated by this regulation, which would exempt most of the financial 
interests from the disqualification provision of section 208(a).
    One agency recommended that OGE emphasize that Sec. 2640.203(d) 
does not preclude an employee from seeking improvements in his working 
conditions merely because a spouse's working conditions might also 
benefit from the change. Under Sec. 2640.203(d), if the request is made 
on his behalf, rather than on behalf of his spouse, an employee may 
request that his working environment be enhanced even if the request 
results in an improved working environment for his spouse.
    Three agencies commented on the phrase ``determinations that 
individually or specially affect their Government salary and benefits. 
The first agency commented that the phrase did not clarify the scope of 
the exemption. The Office of Government Ethics has not modified the 
regulation because the ten examples which follow the exemption help 
illustrate the scope of the exemption. This agency also questioned 
whether the exemption would permit an office director and her top 
management to decide what positions will be subject to a reduction in 
force without requiring them to obtain individual waivers. Example 10 
following the exemption addresses a very similar issue.
    A second agency questioned whether the adverbs ``individually or 
specially'' would modify both ``relate to'' and ``affect.'' 
``Individually or specially'' modify both phrases. The third agency 
requested that the terms ``individually'' and ``specially'' be defined. 
The Office of Government Ethics believes that the examples which follow 
Sec. 2640.203(d) illustrate the meaning of the terms ``individually'' 
and ``specially.'' Of course, in cases where an agency is uncertain 
whether an exemption applies, it is always free to issue an individual 
waiver under section 208 (b)(1) or (b)(3).
    The third agency also recommended that the phrase ``make 
determinations'' be defined. Through the examples following 
Sec. 2640.203(d), the Office of Government Ethics has illustrated what 
constitutes a determination. Generally, a determination involves an 
official Government decision whether intermediate or final.
    Six agencies commented on Example 3 following Sec. 2640.203(d). 
Generally, these agencies indicated that some high-level officials and 
senior personnel do not have a ``supervising official'' to approve 
travel authorizations or vouchers. To accommodate agency concerns, OGE 
inserted the following clause into the final sentence of Example 3 as 
adopted in this final rule: ``unless he has been delegated, in advance, 
authority to make such approvals in accordance with agency policy.'' 
Consequently, an employee may approve his own travel authorization or 
payment of his own travel expenses if, in advance, such authority has 
been delegated to him according to agency policy. For purposes of this 
exemption, an advance delegation of this type will be deemed to be a 
determination by the employee's agency rather than a determination by 
the employee. Another agency questioned whether the approval of an 
employee's travel voucher by both the ``approving official'' and the 
``certifying official'' are ``determinations'' for purposes of 
Sec. 2640.203(d). Both certification and approval are determinations 
within the scope of the exemption found at Sec. 2640.203(d) of this 
final rule.
    One agency stated that it was not clear that the situations 
described in Examples 4 and 6 following Sec. 2640.203(d) present 
``particular matters.'' The examples concern all Federal employees or a 
very large group of Federal employees. The Office of Government Ethics 
believes that the class of all Federal employees or a large group of 
Federal employees is a ``discrete and identifiable class of persons'' 
within the meaning of a ``particular matter'' found in this regulation 
at Sec. 2640.103(a)(1).

[[Page 66838]]

    One agency commented on Example 5 following Sec. 2640.203(d). The 
agency argued that drafting a regulation that will provide expanded 
hospital benefits for veterans is not a ``particular matter'' and would 
not require an exemption. The Office of Government Ethics disagrees 
with this argument. According to Sec. 2640.103(a)(1), a particular 
matter includes `` * * * matters that involve deliberation, decision, 
or action that is focused upon the interests of specific persons, or a 
discrete and identifiable class of persons.'' Veterans are a discrete 
and identifiable class of persons; therefore, a regulation dealing with 
hospital benefits for veterans is a particular matter.
    Another agency did not understand the distinction, if any, between 
Example 7 and Example 8 which follow Sec. 2640.203(d). Example 7 allows 
an employee to participate in GSA's evaluation of the feasibility of 
privatizing the Federal Supply Service, even though the employee's own 
position would be eliminated if the decision to privatize were made. 
The employee may participate in the evaluation because according to the 
facts as described, he is merely studying whether it is feasible to 
privatize the Federal Supply Service. Ultimately, GSA may decide not to 
privatize. At this point, it cannot be said that the matter will have a 
direct and predictable effect on the employee's financial interest, and 
therefore, no exemption or waiver is needed to allow the employee to 
participate. Moreover, even if the employee was involved in the 
implementation of a decision to privatize the Federal Supply Service, 
the employee would not be making a determination that individually or 
specially affects his own Government salary. In Example 8, the employee 
may not participate in the implementation of the privatization plan to 
eliminate the employee's Federal position and create a new position in 
a private organization because the employee would be making 
determinations that affect interests other than those that arise from 
Government employment. The employee's interest in a position in the 
newly privatized corporation is not an interest that ``arises from 
Federal Government employment or from Social Security or veterans' 
benefits.''
    One agency suggested that recodified Sec. 2640.203(d) be broadened 
to cover the salary and benefits of employees of the Federal Reserve 
banks. The Office of Government Ethics revised the provision 
accordingly.
    Three comments were received regarding privatization concerns. One 
agency recommended that the Office of Government Ethics assume a 
leadership role to facilitate privatization efforts through the 
development of solutions to potential ethics impediments to 
privatization. The Office of Government Ethics has addressed some 
privatization issues in the interim rule published in the Federal 
Register on August 28, 1995 (60 FR 44706). With some limitations, the 
exemption permits an employee to engage in many of the activities 
associated with privatization. Furthermore, OGE provides practical 
advice to agency officials involved in privatization. Another agency's 
comment requested that OGE adopt an exemption in the cases of salaries 
and benefits of employees of any Federal agency engaged in planning the 
transfer of all its assets, programs and employees to a successor 
nonprofit corporation in either the public or the private sector. A 
comprehensive regulatory exemption is not appropriate in such cases. 
The Office of Government Ethics cannot make a blanket determination 
that in all such situations the financial interests of all employees 
are too remote or too inconsequential to affect the integrity of their 
services. Therefore, no exemption has been adopted; however, the agency 
may issue individual waivers under section 208(b)(1) or (b)(3) where 
applicable to facilitate the transition to a nonprofit corporation. 
Finally, one person questioned whether Sec. 2640.203(d) applies to 
union officials involved in privatization negotiations. The exemptions 
found at part 2640 apply to union officials to the same extent to which 
they apply to all other executive branch employees.
    One agency questioned why interests arising from Social Security 
and veterans' benefits were exempted under Sec. 2640.203(d), but 
financial interests arising from participation in programs such as 
Medicare, Medicaid, Food Stamps, Aid to Families with Dependent 
Children and Federal student loans were not exempted. Because interests 
in those programs are not derived from the individual's status as a 
Government employee, the exemption at Sec. 2640.203(d) is not 
applicable.
Special Government Employees Serving on Advisory Committees
    Four agencies responded positively to Sec. 2640.203(g) of the 
proposed rule indicating that the exemption will make it easier for 
agencies to recruit special Government employees (SGE). One agency 
recommended that the exemption be expanded to cover investment 
interests in the special Government employee's area of expertise. The 
agency asserted that such interests do not pose any greater threat to 
the integrity of the SGE's services than employment interests. The 
Office of Government Ethics has not expanded the exemption to cover 
investment interests in a SGE's area of expertise because exemptions 
for certain investment interests are already available under 
Sec. 2640.202. If the exemptions under Sec. 2640.202 are not 
sufficient, then the employee may request a waiver under 18 U.S.C. 
208(b)(3).
    Another agency suggested that Sec. 2640.203(g) apply to all non-
Federal employers of the SGE, not just the SGE's ``principal 
employer,'' since many advisory committee members act as consultants to 
various different private sector entities. The Office of Government 
Ethics believes the exemption should apply only where the employee has 
an employee/employer relationship with the outside entity. Employees 
serving on advisory committees often are chosen because of their 
expertise in a certain field or because of their affiliation with 
certain interest groups. Because advisory committee meetings are open, 
employment interests are readily apparent to the public. Members and 
their employment affiliations are typically identified publicly. On the 
other hand, an SGE's bias because of an affiliation as a consultant may 
not be so evident and since such relationships may not be well known to 
the public. Therefore, the Office of Government Ethics has not changed 
this provision.
    Another agency recommended that the exemption cover all SGEs, not 
just those serving on advisory committees. The Office of Government 
Ethics disagrees with the recommendation and is not adopting it in this 
final rule. As explained in the preamble of the proposed rule, the 
exemption at Sec. 2640.203(g) is limited to special Government 
employees who are on Federal advisory committees because the public's 
interest in the integrity of advisory committee proceedings is 
protected by the nature of the proceedings themselves. Ordinarily, no 
one individual can control the recommendations of the committee. 
Moreover, the public interest in the employees' integrity is protected 
by the openness required by the Federal Advisory Committee Act, 5 
U.S.C. app. Such safeguards are not present in the case of SGEs not 
serving on advisory committees.
    One agency asked that OGE clarify the phrase ``special or distinct 
effect'' used in proposed Sec. 2640.203(g). Because of the need for 
flexibility, the Office of Government Ethics did not define the

[[Page 66839]]

phrase. Example 1 following Sec. 2640.203(g) explains that an SGE may 
participate in a matter on an advisory committee even though the 
recommendation by the advisory committee will affect his non-Federal 
employer as part of a class. However, it is not OGE's intent that the 
exemption apply only where the effect of the matter on members within a 
class is identical. Normally, the matter would have a ``special or 
distinct effect'' when its impact would be unique to the employee or 
his employer, or where the effect would be clearly out of proportion in 
comparison to the effect on other members of the class. Where it is 
difficult to determine if a ``special or distinct effect'' may occur, 
an agency has the option of issuing an individual waiver under section 
208 (b)(1) or (b)(3).
Directors of Federal Reserve Banks
    One agency commented on Sec. 2640.203(h) of the proposed rule and 
questioned whether use of the exemption would preclude the use of other 
exemptions such as those for de minimis investments. The exemptions 
found in this final part 2640 regulation are intended to be used where 
applicable in particular situations with no restriction on the number 
of exemptions utilized by an employee. Therefore, application of one 
exemption does not preclude the application of another exemption.
Medical Products
    One agency commented on Sec. 2640.203(i) as proposed. The agency 
stated that Sec. 2640.203(i)(1) should not be limited to matters 
involving the ``approval or classification'' of medical products, but 
should be broadened to cover ``Federal advisory committee matters 
concerning medical products * * * .'' The agency recommended 
eliminating the distinction between medical products and medical 
devices because in the industry ``medical products'' is a generic term 
used to describe all products and devices intended for therapeutic or 
diagnostic purposes. The Office of Government Ethics has adopted both 
recommendations in this final rule. The agency requested that the 
language of Sec. 2640.203(i)(1) include ``use by or sale to its 
patients'' to reflect actual practice where hospitals have a pharmacy 
from which patients buy prescription products for use on an outpatient 
basis. The agency also recommended that proposed Sec. 2640.203(i)(2) be 
changed to cover ``the use or prescription of medical products for 
patients.'' Based on the commenting agency's expertise, OGE has revised 
Sec. 2640.203(i) to accommodate the agency's recommendations. The 
agency also requested that it should be noted that intellectual 
property rights are not covered by this exemption. The Office of 
Government Ethics has not incorporated this suggestion. To simplify the 
regulation, OGE has decided to describe only what interests are covered 
by the exemptions rather than what interests are not included.
    The same agency recommended that proposed Sec. 2640.203(i) should 
cover SGEs who are not serving on a Federal advisory committee, 
provided that the SGEs work no more than 60 days in any 365 day period 
and their services are advisory only. The safeguards of the Federal 
advisory committee process, as described above, are not present in 
situations involving SGEs not serving on advisory committees; 
therefore, the Office of Government Ethics has not expanded the 
exemption in the final rule.
Representative Members of FDA Advisory Committees
    A new exemption has been added, at the request of the Food and Drug 
Administration (FDA), at Sec. 2640.203(j) of the final rule for certain 
nonvoting representative members of technical advisory committees 
established by the FDA. The provision exempts any disqualifying 
financial interest the nonvoting member has in the class that he 
represents on the committee. The exemption continues, in part, an 
existing FDA exemption promulgated in 1976 when individual agencies had 
the authority to issue old section 208(b)(2) regulatory waivers.
    Nonvoting members of FDA technical advisory committees may be 
appointed pursuant to one of several authorities, including 21 U.S.C. 
394, 360c(b), or 360j(f)(3). Some of these statutory authorities 
require that certain members of the committees be appointed as 
representatives of consumer and industry groups and specify that these 
groups have the opportunity to nominate persons to serve in a 
representative capacity. Ordinarily, persons serving in a 
representative capacity would not be considered employees of the 
Government. See Office of Government Ethics (OGE) Informal Advisory 
Letter 82x22, ``The Informal Advisory Letters and Memoranda and Formal 
Opinions of the United States Office of Government Ethics'' 325, 329-31 
(1979-1988).
    Nevertheless, HHS has appointed these members as special Government 
employees because 21 U.S.C. 331(j) prohibits the FDA from disclosing 
trade secret information to persons who are not employees of HHS, and 
the members of these technical advisory committees need to have access 
to certain trade secret information in order to carry out the 
committees' activities. Therefore, in order to accomplish the work that 
Congress intended these committees perform, the representative members 
of these committees are appointed as special Government employees.
    As a general proposition, OGE believes that representatives are not 
Government employees because they are not carrying out a Federal 
function on behalf of the Government. Accordingly, in OGE's view, 
representatives ordinarily would not be appointed as employees. Where 
members of FDA technical advisory committees are required by statute to 
be appointed as representatives and must have access to confidential 
information to carry out their duties as members of the committee, 
however, it is arguable that Congress envisioned that they would act as 
both representatives and as employees.
    Regulations promulgated by the FDA that govern the activities of 
these representative members contain certain limitations designed to 
safeguard the integrity of the advisory committee proceedings. First, 
although the members are appointed as special Government employees, 
they are still under an obligation to represent the views of non-
Federal industry and consumer groups, and this obligation is publicly 
disclosed. See 21 CFR 14.84(c). And although representative members 
participate in committee discussions, they are not permitted to vote on 
committee recommendations. 21 CFR 14.86(a)(1). Representative members 
are also subject to specific limitations on their participation in 
matters directly involving their employer, as well as general 
limitations on their advocacy. 21 CFR 14.86(c)(4)-(6). Failure to 
adhere to these limitations may result in removal from the committee. 
21 CFR 14.86(d). Accordingly, in view of the limited nature of their 
services and the public expectation that they will act as 
representatives, there appears to be little risk that appointment of 
these representatives as special Government employees will impair the 
advisory committee process.
    The exemption applies only to disqualifying financial interests 
that arise from the class which the employee represents. For example, 
an employee who represents the pharmaceutical industry may have 
disqualifying financial interests that arise from his employment with a 
pharmaceutical company and from ownership of stock

[[Page 66840]]

in the company. The employee's disqualifying financial interests 
arising from these relationships and assets are exempt under 
Sec. 2640.203(j). On the other hand, ownership of stock in the same 
company by an employee who represents consumer groups does not create a 
disqualifying financial interest in the same class which the employee 
represents. In this case, the employee who represents consumer groups 
would need an individual waiver under section 208(b)(1) or (b)(3) 
before participating in advisory committee activities affecting the 
company in which she owns stock.
Employees of the Tennessee Valley Authority
    Section 2640.203(k) of the final rule contains a new exemption 
applicable to employees of the Tennessee Valley Authority (TVA) who 
participate in developing or approving power rate schedules, or other 
similar matters, for the production of electric power within the TVA 
service area. The provision continues an existing exemption promulgated 
by the TVA at 18 CFR 1300.735 pursuant to its authority under 18 U.S.C. 
208(b)(2) before the statute was amended in 1989. The exemption applies 
only to disqualifying financial interests arising from the use of 
electric power sold by the TVA.
Section 2640.204  Prohibited Financial Interests
    One agency stated that 5 CFR 2635.403(b), which authorizes an 
agency to prohibit the holding of certain financial interests in 
individual cases, should have no applicability where a financial 
interest is covered by a regulatory exemption. The agency noted that 
situations arising under Sec. 2635.403(b) are not analogous to 
situations where financial interests are prohibited under statute or 
supplemental regulation. The Office of Government Ethics did not make 
the recommended modification. Deleting the reference to 5 CFR 
2635.403(b) would interfere with an agency's ability to make 
independent determinations about substantial conflicts. However, 
Sec. 2640.204 has been revised to clarify that none of the exemptions 
apply to financial interests ``held or acquired by the employee, his 
spouse, or minor child in violation of a statute or agency supplemental 
regulation * * *.'' This clarifying revision is necessary to address 
the fact that a few agencies have supplemental regulations which 
prohibit spouses and minor children from holding or acquiring certain 
interests.
Section 2640.205  Employee Responsibility
    One agency requested that the final sentence in this section as 
proposed, which referred in part to an employee's uncertainty about 
whether a waiver is applicable, should be changed to reference an 
``exemption or waiver.'' The Office of Government Ethics has corrected 
that provision in the final rule to state, ``An employee who is unsure 
whether an exemption is applicable * * *.''
    Two agencies made comments regarding employee reliance on agency 
advice. One agency thought it would be useful to encourage employees to 
rely on specific advice of their organization's ethics officials. 
Another agency recommended that OGE add a ``safe harbor'' provision 
under which the employee would not be subject to criminal prosecution 
or disciplinary action when relying in good faith on the advice of an 
agency ethics official with respect to the applicability of the 
exemptions. The Office of Government Ethics did not add a ``safe 
harbor'' provision. The correct standard concerning reliance on the 
advice of ethics officials is stated at 5 CFR 2635.107(b). That 
provision states that ``good faith reliance on the advice of an agency 
ethics official is a factor that may be taken into account by the 
Department of Justice in the selection of cases for prosecution.''
    One agency stated that it supports the concept that employees have 
to take responsibility for determining whether an exemption applies in 
a particular case. A second agency, however, expressed concern that the 
regulation as proposed would not accomplish its stated purpose of 
lessening the burden on agency ethics officials since employees may not 
rely on a provision unless the interest is specifically exempt and 
employees will be forced to consult with an ethics official prior to 
taking action. The Office of Government Ethics understands this 
concern, but believes that most employees will be able to apply the 
basic exemption provisions once they take effect. In addition, because 
this regulation implements a criminal statute, it should be 
sufficiently precise so that employees have adequate notice of when 
they may act without fear of violating section 208. Naturally, when an 
employee is in doubt as to the application of a particular provision, 
he will have to consult with an ethics official. However, as addressed 
earlier in the Summary of Contents, OGE has attempted to make the 
regulations less complex by simplifying language and deleting some 
exemptions. These modifications should make the regulation somewhat 
easier for employees to understand and apply.
    One agency complained about the burden on employees in complying 
with the regulation to the extent that they would have to obtain 
information about their investments to determine whether they meet with 
conditions set forth in the exemptions. The Office of Government Ethics 
does not believe this should be an onerous task. Most employees receive 
prospectuses and periodic updates about their investments. If they did 
not keep these materials, they can obtain information by calling the 
manager of the fund, trust or plan.
    The same agency suggested the creation of a Governmentwide database 
listing investments (e.g., nonsector mutual funds and certain pensions) 
that do not create conflicts of interests and that could be updated 
quarterly and shared by all agencies and employees as a means of 
ensuring compliance. The Office of Government Ethics does not believe 
this would be a practical use of resources or staff. The number of 
investments that could be included would be so large that it would be 
nearly impossible to identify them all with any precision. Inevitably, 
some investments would be omitted, and the system would prove to be 
unreliable.
    One agency suggested that OGE provide training resources for 
employees and ethics officials. The Office of Government Ethics 
anticipates developing training resources and materials concerning the 
new regulation.
Section 2640.206  Existing Agency Exemptions
    An agency suggested that the regulation include a grandfather 
clause for those employees who currently have exempted interests under 
individual agency regulations, allowing the employee to continue to 
hold that exempted interest as long as the employee maintains the same 
duties. The Office of Government Ethics does not agree that a 
grandfather clause would be desirable. A grandfather clause would 
result in a complicated scheme for agencies to administer. Under such 
system, some employees would function under section 208(b)(2) agency 
exemptions in existence prior to these regulations, while others would 
function under the new exemptions. If an agency needs to continue a 
specific exemption not covered under these regulations, it should 
submit one to OGE for consideration. Alternatively, an agency can 
consider granting waivers on an individual basis under section

[[Page 66841]]

208(b)(1) to employees who have exemptions under current agency rules.

Subpart C--Individual Waivers

Section 2640.301  Waivers Issued Pursuant to 18 U.S.C. 208(b)(1)
    One agency commented that subpart C of the part 2640 regulation as 
proposed should be deleted in its entirety, as it is duplicative and 
unnecessary since individual waivers are covered at 5 CFR 
2635.402(d)(2). The Office of Government Ethics has not adopted this 
suggestion in this final rule. These new regulations contain more 
detailed requirements than those described in Sec. 2635.402(d)(2), as 
well as a list of factors an agency may use in determining whether a 
disqualifying financial interest is sufficiently substantial to be 
deemed likely to affect the integrity of the employee's services to the 
Government.
    A second agency responded with two observations. First, the agency 
assumed that describing the broad scope of duties encompassed by an 
employee's official duties will be sufficient to meet the requirement 
under Sec. 2640.301(a)(3). Second, it stated that an appointing 
authority has discretion, but is not required to issue a waiver even if 
all of the enumerated requirements are met. The Office of Government 
Ethics agrees with the commenter on both points and has retained 
subpart C in its entirety in this final rule.
    Another agency thought it would be helpful to add to proposed 
Sec. 2640.301(b) another factor such as ``availability at the location 
of other persons qualified to perform the service in a timely 
fashion,'' in order to assist agencies that have small posts abroad 
where no one else can perform the employee's tasks. The Office of 
Government Ethics did not add this factor because consideration of such 
circumstances is implicit in the factor described at 
Sec. 2640.301(b)(b)(6)(ii).
Section 2640.304  Public Availability of Agency Waivers
    One agency requested that OGE add a requirement that advisory 
committee members file public financial disclosure statements or, 
alternatively, that OGE seek appropriate legislation modifying section 
107(a)(2) of the Ethics in Government Act to require agencies to 
disclose publicly the identity of an individual's principal employment, 
positions held and contractual relationships, and investment interests 
that may be relevant to the purposes and functions of the advisory 
committee. This request is outside the scope of this regulation, which 
deals principally with exemptions from section 208.

III. Existing Agency Exemptions

    As of the effective date of this regulation, regulatory exemptions 
issued by individual agencies under the authority of 18 U.S.C. 
208(b)(2), as in effect prior to November 30, 1989, will no longer be 
effective.

IV. Matters of Regulatory Procedure

Executive Order 12866

    In promulgating this final regulation, the Office of Government 
Ethics has adhered to the regulatory philosophy and the applicable 
principles of regulation set forth in section 1 of Executive Order 
12866, Regulatory Review and Planning. This regulation has also been 
reviewed by the Office of Management and Budget under that Executive 
order.

Regulatory Flexibility Act

    As Director of the Office of Government Ethics, I certify under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) that this final 
regulation will not have a significant impact on a substantial number 
of small entities because it primarily affects Federal executive branch 
employees.

Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply 
because this final regulation does not contain information collection 
requirements that require the approval of the Office of Management and 
Budget.

List of Subjects in 5 CFR Part 2640

    Conflict of interests, Government employees.

    Approved: September 26, 1996.
Stephen D. Potts,
Director, Office of Government Ethics.

    Accordingly, for the reasons set forth in the preamble, the Office 
of Government Ethics is amending title 5, chapter XVI, subchapter B of 
the Code of Federal Regulations by revising part 2640 to read as 
follows:

PART 2640--INTERPRETATION, EXEMPTIONS AND WAIVER GUIDANCE 
CONCERNING 18 U.S.C. 208 (ACTS AFFECTING A PERSONAL FINANCIAL 
INTEREST)

Subpart A--General Provisions

Sec.
2640.101  Purpose.
2640.102  Definitions.
2640.103  Prohibition.

Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)

2640.201  Exemptions for interests in mutual funds, unit investment 
trusts, and employee benefit plans.
2640.202  Exemptions for interests in securities.
2640.203  Miscellaneous exemptions.
2640.204  Prohibited financial interests.
2640.205  Employee responsibility.
2640.206  Existing agency exemptions.

Subpart C--Individual Waivers

2640.301  Waivers issued pursuant to 18 U.S.C. 208(b)(1).
2640.302  Waivers issued pursuant to 18 U.S.C. 208(b)(3).
2640.303  Consultation and notification regarding waivers.
2640.304  Public availability of agency waivers.

    Authority: 5 U.S.C. App. (Ethics in Government Act of 1978); 18 
U.S.C. 208; E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 215, as 
modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 Comp., p. 306.

Subpart A--General Provisions


Sec. 2640.101  Purpose.

    18 U.S.C. 208(a) prohibits an officer or employee of the executive 
branch, of any independent agency of the United States, of the District 
of Columbia, or Federal Reserve bank director, officer, or employee, or 
any special Government employee from participating in an official 
capacity in particular matters in which he has a personal financial 
interest, or in which certain persons or organizations with which he is 
affiliated have a financial interest. The statute is intended to 
prevent an employee from allowing personal interests to affect his 
official actions, and to protect governmental processes from actual or 
apparent conflicts of interests. However, in certain cases, the nature 
and size of the financial interest and the nature of the matter in 
which the employee would act are unlikely to affect an employee's 
official actions. Accordingly, the statute permits waivers of the 
disqualification provision in certain cases, either on an individual 
basis or pursuant to general regulation. Section 208(b)(2) provides 
that the Director of the Office of Government Ethics may, by 
regulation, exempt from the general prohibition, financial interests 
which are too remote or too inconsequential to affect the integrity of 
the services of the employees to which the prohibition applies. The 
regulations in this part describe those financial interests. This part 
also provides guidance to agencies on the factors to consider when 
issuing individual waivers under 18 U.S.C. 208 (b)(1) or (b)(3), and 
provides an interpretation of 18 U.S.C. 208(a).

[[Page 66842]]

Sec. 2640.102  Definitions.

    For purposes of this part:
    (a) Diversified means that the fund, trust or plan does not have a 
stated policy of concentrating its investments in any industry, 
business, single country other than the United States, or bonds of a 
single State within the United States and, in the case of an employee 
benefit plan, means that the plan's trustee has a written policy of 
varying plan investments.

    Note to paragraph (a): A mutual fund is diversified for purposes 
of this part if it does not have a policy of concentrating its 
investments in an industry, business, country other than the United 
States, or single State within the United States. Whether a mutual 
fund meets this standard may be determined by checking the fund's 
prospectus or by calling a broker or the manager of the fund. An 
employee benefit plan is diversified if the plan manager has a 
written policy of varying assets. This policy might be found in 
materials describing the plan or may be obtained in a written 
statement from the plan manager. It is important to note that a 
mutual fund or employee benefit plan that is diversified for 
purposes of this part may not necessarily be an excepted investment 
fund (EIF) for purposes of reporting financial interests pursuant to 
5 CFR 2634.310(c). In some cases, an employee may have to report the 
underlying assets of a fund or plan on his financial disclosure 
statement even though an exemption set forth in this part would 
permit the employee to participate in a matter affecting the 
underlying assets of the fund or plan. Conversely, there may be 
situations in which no exemption in this part is applicable to the 
assets of a fund or plan which is properly reported as an EIF on the 
employee's financial disclosure statement.

    (b) Employee means an officer or employee of the executive branch 
of the United States, or of any independent agency of the United 
States, a Federal Reserve bank director, officer, or employee, or an 
officer or employee of the District of Columbia. The term also includes 
a special Government employee as defined in 18 U.S.C. 202.
    (c) Employee benefit plan means a plan as defined in section 3(3) 
of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 
1002(3), and that has more than one participant. An employee benefit 
plan is any plan, fund or program established or maintained by an 
employer or an employee organization, or both, to provide its 
participants medical, disability, death, unemployment, or vacation 
benefits, training programs, day care centers, scholarship funds, 
prepaid legal services, deferred income, or retirement income.
    (d) He, his, and him include she, hers, and her.
    (e) Holdings means portfolio of investments.
    (f) Independent trustee means a trustee who is independent of the 
sponsor and the participants in a plan, or is a registered investment 
advisor.
    (g) Institution of higher education means an educational 
institution as defined in 20 U.S.C. 1141(a).
    (h) Issuer means a person who issues or proposes to issue any 
security, or has any outstanding security which it has issued.
    (i) Long-term Federal Government security means a bond or note, 
except for a U.S. Savings bond, with a maturity of more than one year 
issued by the United States Treasury pursuant to 31 U.S.C. chapter 31.
    (j) Municipal security means direct obligation of, or obligation 
guaranteed as to principal or interest by, a State (or any of its 
political subdivisions, or any municipal corporate instrumentality of 
one or more States), or the District of Columbia, Puerto Rico, the 
Virgin Islands, or any other possession of the United States.
    (k) Mutual fund means an entity which is registered as a management 
company under the Investment Company Act of 1940, as amended (15 U.S.C. 
80a-1 et seq.). For purposes of this part, the term mutual fund 
includes open-end and closed-end mutual funds and registered money 
market funds.
    (l) Particular matter involving specific parties includes any 
judicial or other proceeding, application, request for a ruling or 
other determination, contract, claim, controversy, investigation, 
charge, accusation, arrest or other particular matter involving a 
specific party or parties. The term typically involves a specific 
proceeding affecting the legal rights of the parties, or an isolatable 
transaction or related set of transactions between identified parties.
    (m) Particular matter of general applicability means a particular 
matter that is focused on the interests of a discrete and identifiable 
class of persons, but does not involve specific parties.
    (n) Pension plan means any plan, fund or program maintained by an 
employer or an employee organization, or both, to provide retirement 
income to employees, or which results in deferral of income for periods 
extending to, or beyond, termination of employment.
    (o) Person means an individual, corporation, company, association, 
firm, partnership, society or any other organization or institution.
    (p) Publicly traded security means a security as defined in 
paragraph (r) of this section and which is:
    (1) Registered with the Securities and Exchange Commission pursuant 
to section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) 
and listed on a national or regional securities exchange or traded 
through NASDAQ;
    (2) Issued by an investment company registered pursuant to section 
8 of the Investment Company Act of 1940, as amended (15 U.S.C. 80a-8); 
or
    (3) A corporate bond registered as an offering with the Securities 
and Exchange Commission under section 12 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78l) and issued by an entity whose stock is a 
publicly traded security.

    Note to paragraph (p): National securities exchanges include the 
American Stock Exchange and the New York Stock Exchange. Regional 
exchanges include Boston, Cincinnati, Intermountain (Salt Lake 
City), Midwest (Chicago), Pacific (Los Angeles and San Francisco), 
Philadelphia (Philadelphia and Miami), and Spokane stock exchanges.

    (q) Sector mutual fund means a mutual fund that concentrates its 
investments in an industry, business, single country other than the 
United States, or bonds of a single State within the United States.
    (r) Security means common stock, preferred stock, corporate bond, 
municipal security, mutual fund, long-term Federal Government security, 
and limited partnership interest.
    (s) Short-term Federal Government security means a bill with a 
maturity of one year or less issued by the United States Treasury 
pursuant to 31 U.S.C. chapter 31.
    (t) Special Government employee means those executive branch 
officers or employees specified in 18 U.S.C. 202(a). A special 
Government employee is retained, designated, appointed or employed to 
perform temporary duties either on a full-time or intermittent basis, 
with or without compensation, for a period not to exceed 130 days 
during any consecutive 365-day period.
    (u) Unit investment trust means an investment company as defined in 
15 U.S.C. 80a-4(2) that is a regulated investment company under 26 
U.S.C. 851.
    (v) United States Savings bond means a savings bond issued by the 
United States Treasury pursuant to 31 U.S.C. 3105.


Sec. 2640.103   Prohibition.

    (a) Statutory prohibition. Unless permitted by 18 U.S.C. 208(b) 
(1)-(4), an employee is prohibited by 18 U.S.C. 208(a) from 
participating personally and substantially in an official capacity in 
any particular matter in which, to his knowledge, he or any other 
person specified in the statute has a financial interest, if the 
particular matter will have a direct and predictable effect on

[[Page 66843]]

that interest. The restrictions of 18 U.S.C. 208 are described more 
fully in 5 CFR 2635.401 and 2635.402.
    (1) Particular matter. The term ``particular matter'' includes only 
matters that involve deliberation, decision, or action that is focused 
upon the interests of specific persons, or a discrete and identifiable 
class of persons. The term may include matters which do not involve 
formal parties and may extend to legislation or policy making that is 
narrowly focused on the interests of a discrete and identifiable class 
of persons. It does not, however, cover consideration or adoption of 
broad policy options directed to the interests of a large and diverse 
group of persons. The particular matters covered by this part include a 
judicial or other proceeding, application or request for a ruling or 
other determination, contract, claim, controversy, charge, accusation 
or arrest.

    Example 1: The Overseas Private Investment Corporation decides 
to hire a contractor to conduct EEO training for its employees. The 
award of a contract for training services is a particular matter.
    Example 2: The spouse of a high level official of the Internal 
Revenue Service (IRS) requests a meeting on behalf of her client (a 
major U.S. corporation) with IRS officials to discuss a provision of 
IRS regulations governing depreciation of equipment. The spouse will 
be paid a fee by the corporation for arranging and attending the 
meeting. The consideration of the spouse's request and the decision 
to hold the meeting are particular matters in which the spouse has a 
financial interest.
    Example 3: A regulation published by the Department of 
Agriculture applicable only to companies that operate meat packing 
plants is a particular matter.
    Example 4: A change by the Department of Labor to health and 
safety regulations applicable to all employers in the United States 
is not a particular matter. The change in the regulations is 
directed to the interests of a large and diverse group of persons.
    Example 5: The allocation of additional resources to the 
investigation and prosecution of white collar crime by the 
Department of Justice is not a particular matter. Similarly, 
deliberations on the general merits of an omnibus bill such as the 
Tax Reform Act of 1986 are not sufficiently focused on the interests 
of specific persons, or a discrete and identifiable group of persons 
to constitute participation in a particular matter.
    Example 6: The recommendations of the Council of Economic 
Advisors to the President about appropriate policies to maintain 
economic growth and stability are not particular matters. 
Discussions about economic growth policies are directed to the 
interests of a large and diverse group of persons.
    Example 7: The formulation and implementation of the response of 
the United States to the military invasion of a U.S. ally is not a 
particular matter. General deliberations, decisions and actions 
concerning a response are based on a consideration of the political, 
military, diplomatic and economic interests of every sector of 
society and are too diffuse to be focused on the interests of 
specific individuals or entities. However, at the time consideration 
is given to actions focused on specific individuals or entities, or 
a discrete and identifiable class of individuals or entities, the 
matters under consideration would be particular matters. These would 
include, for example, discussions whether to close a particular oil 
pumping station or pipeline in the area where hostilities are taking 
place, or a decision to seize a particular oil field or oil tanker.
    Example 8: A legislative proposal for broad health care reform 
is not a particular matter because it is not focused on the 
interests of specific persons, or a discrete and identifiable class 
of persons. It is intended to affect every person in the United 
States. However, consideration and implementation, through 
regulations, of a section of the health care bill limiting the 
amount that can be charged for prescription drugs is sufficiently 
focused on the interests of pharmaceutical companies that it would 
be a particular matter.

    (2) Personal and substantial participation. To participate 
``personally'' means to participate directly. It includes the direct 
and active supervision of the participation of a subordinate in the 
matter. To participate ``substantially'' means that the employee's 
involvement is of significance to the matter. Participation may be 
substantial even though it is not determinative of the outcome of a 
particular matter. However, it requires more than official 
responsibility, knowledge, perfunctory involvement, or involvement on 
an administrative or peripheral issue. A finding of substantiality 
should be based not only on the effort devoted to the matter, but also 
on the importance of the effort. While a series of peripheral 
involvements may be insubstantial, the single act of approving or 
participating in a critical step may be substantial. Personal and 
substantial participation may occur when, for example, an employee 
participates through decision, approval, disapproval, recommendation, 
investigation or the rendering of advice in a particular matter.

    Example 1: An agency's Office of Enforcement is investigating 
the allegedly fraudulent marketing practices of a major corporation. 
One of the agency's personnel specialists is asked to provide 
information to the Office of Enforcement about the agency's 
personnel ceiling so that the Office can determine whether new 
employees can be hired to work on the investigation. The employee 
personnel specialist owns $10,000 worth of stock in the corporation 
that is the target of the investigation. She does not have a 
disqualifying financial interest in the matter (the investigation 
and possible subsequent enforcement proceedings) because her 
involvement is on a peripheral personnel issue and her participation 
cannot be considered ``substantial'' as defined in the statute.

    (3) Direct and predictable effect. (i) A particular matter will 
have a ``direct'' effect on a financial interest if there is a close 
causal link between any decision or action to be taken in the matter 
and any expected effect of the matter on the financial interest. An 
effect may be direct even though it does not occur immediately. A 
particular matter will not have a direct effect on a financial 
interest, however, if the chain of causation is attenuated or is 
contingent upon the occurrence of events that are speculative or that 
are independent of, and unrelated to, the matter. A particular matter 
that has an effect on a financial interest only as a consequence of its 
effects on the general economy does not have a direct effect within the 
meaning of this part.
    (ii) A particular matter will have a ``predictable'' effect if 
there is a real, as opposed to a speculative, possibility that the 
matter will affect the financial interest. It is not necessary, 
however, that the magnitude of the gain or loss be known, and the 
dollar amount of the gain or loss is immaterial.

    Example 1: An attorney at the Department of Justice is working 
on a case in which several large companies are defendants. If the 
Department wins the case, the defendants may be required to 
reimburse the Federal Government for their failure to adequately 
perform work under several contracts with the Government. The 
attorney's spouse is a salaried employee of one of the companies, 
working in a division that has no involvement in any of the 
contracts. She does not participate in any bonus or benefit plans 
tied to the profitability of the company, nor does she own stock in 
the company. Because there is no evidence that the case will have a 
direct and predictable effect on whether the spouse will retain her 
job or maintain the level of her salary, or whether the company will 
undergo any reorganization that would affect her interests, the 
attorney would not have a disqualifying financial interest in the 
matter. However, the attorney must consider, under the requirements 
of Sec. 2635.502 of this chapter, whether his impartiality would be 
questioned if he continues to work on the case.
    Example 2: A special Government employee (SGE) whose principal 
employment is as a researcher at a major university is appointed to 
serve on an advisory committee that will evaluate the safety and 
effectiveness of a new medical device to regulate arrhythmic 
heartbeats. The device is being developed by Alpha Medical Inc., a 
company which also has contracted with the SGE's university to 
assist in developing another medical device related to

[[Page 66844]]

kidney dialysis. There is no evidence that the advisory committee's 
determinations concerning the medical device under review will 
affect Alpha Medical's contract with the university to develop the 
kidney dialysis device. The SGE may participate in the committee's 
deliberations because those deliberations will not have a direct and 
predictable effect on the financial interests of the researcher or 
his employer.
    Example 3: The SGE in the preceding example is instead asked to 
serve on an advisory committee that has been convened to conduct a 
preliminary evaluation of the new kidney dialysis device developed 
by Alpha Medical under contract with the employee's university. 
Alpha's contract with the university requires the university to 
undertake additional testing of the device to address issues raised 
by the committee during its review. The committee's actions will 
have a direct and predictable effect on the university's financial 
interest.
    Example 4: An engineer at the Environmental Protection Agency 
(EPA) was formerly employed by Waste Management, Inc., a corporation 
subject to EPA's regulations concerning the disposal of hazardous 
waste materials. Waste Management is a large corporation, with less 
than 5% of its profits derived from handling hazardous waste 
materials. The engineer has a vested interest in a defined benefit 
pension plan sponsored by Waste Management which guarantees that he 
will receive payments of $500 per month beginning at age 62. As an 
employee of EPA, the engineer has been assigned to evaluate Waste 
Management's compliance with EPA hazardous waste regulations. There 
is no evidence that the engineer's monitoring activities will affect 
Waste Management's ability or willingness to pay his pension 
benefits when he is entitled to receive them at age 62. Therefore, 
the EPA's monitoring activities will not have a direct and 
predictable effect on the employee's financial interest in his Waste 
Management pension. However, the engineer should consider whether, 
under the standards set forth in 5 CFR 2635.502, a reasonable person 
would question his impartiality if he acts in a matter in which 
Waste Management is a party.

    (b) Disqualifying financial interests. For purposes of 18 U.S.C. 
208(a) and this part, the term financial interest means the potential 
for gain or loss to the employee, or other person specified in section 
208, as a result of governmental action on the particular matter. The 
disqualifying financial interest might arise from ownership of certain 
financial instruments or investments such as stock, bonds, mutual 
funds, or real estate. Additionally, a disqualifying financial interest 
might derive from a salary, indebtedness, job offer, or any similar 
interest that may be affected by the matter.

    Example 1: An employee of the Department of the Interior owns 
transportation bonds issued by the State of Minnesota. The proceeds 
of the bonds will be used to fund improvements to certain State 
highways. In her official position, the employee is evaluating an 
application from Minnesota for a grant to support a State wildlife 
refuge. The employee's ownership of the transportation bonds does 
not create a disqualifying financial interest in Minnesota's 
application for wildlife funds because approval or disapproval of 
the grant will not in any way affect the current value of the bonds 
or have a direct and predictable effect on the State's ability or 
willingness to honor its obligation to pay the bonds when they 
mature.
    Example 2: An employee of the Bureau of Land Management owns 
undeveloped land adjacent to Federal lands in New Mexico. A portion 
of the Federal land will be leased by the Bureau to a mining company 
for exploration and development, resulting in an increase in the 
value of the surrounding privately owned land, including that owned 
by the employee. The employee has a financial interest in the lease 
of the Federal land to the mining company and, therefore, cannot 
participate in Bureau matters involving the lease unless he obtains 
an individual waiver pursuant to 18 U.S.C. 208(b)(1).
    Example 3: A special Government employee serving on an advisory 
committee studying the safety and effectiveness of a new arthritis 
drug is a practicing physician with a specialty in treating 
arthritis. The drug being studied by the committee would be a low 
cost alternative to current treatments for arthritis. If the drug is 
ultimately approved, the physician will be able to prescribe the 
less expensive drug. The physician does not own stock in, or hold 
any position, or have any business relationship with the company 
developing the drug. Moreover, there is no indication that the 
availability of a less expensive treatment for arthritis will 
increase the volume and profitability of the doctor's private 
practice. Accordingly, the physician has no disqualifying financial 
interest in the actions of the advisory committee.

    (c) Interests of others. The financial interests of the following 
persons will serve to disqualify an employee to the same extent as the 
employee's own interests:
    (1) The employee's spouse;
    (2) The employee's minor child;
    (3) The employee's general partner;
    (4) An organization or entity which the employee serves as officer, 
director, trustee, general partner, or employee; and
    (5) A person with whom the employee is negotiating for, or has an 
arrangement concerning, prospective employment.

    Example 1: An employee of the Consumer Product Safety Commission 
(CPSC) has two minor children who have inherited shares of stock 
from their grandparents in a company that manufactures small 
appliances. Unless an exemption is applicable under Sec. 2640.202 or 
he obtains a waiver under 18 U.S.C. 208(b)(1), the employee is 
disqualified from participating in a CPSC proceeding to require the 
manufacturer to remove a defective appliance from the market.
    Example 2: A newly appointed employee of the Department of 
Housing and Urban Development (HUD) is a general partner with three 
former business associates in a partnership that owns a travel 
agency. The employee knows that his three general partners are also 
partners in another partnership that owns a HUD-subsidized housing 
project. Unless he receives a waiver pursuant to 18 U.S.C. 208(b)(1) 
permitting him to act, the employee must disqualify himself from 
particular matters involving the HUD-subsidized project which his 
general partners own.
    Example 3: The spouse of an employee of the Department of Health 
and Human Services (HHS) works for a consulting firm that provides 
support services to colleges and universities on research projects 
they are conducting under grants from HHS. The spouse is a salaried 
employee who has no direct ownership interest in the firm such as 
through stockholding, and the award of a grant to a particular 
university will have no direct and predictable effect on his 
continued employment or his salary. Because the award of a grant 
will not affect the spouse's financial interest, section 208 would 
not bar the HHS employee from participating in the award of a grant 
to a university to which the consulting firm will provide services. 
However, the employee should consider whether her participation in 
the award of the grant would be barred under the impartiality 
provision in the Standards of Ethical Conduct for Employees of the 
Executive Branch at 5 CFR 2635.502.

    (d) Disqualification. Unless the employee is authorized to 
participate in the particular matter by virtue of an exemption or 
waiver described in subpart B or subpart C of this part, or the 
interest has been divested in accordance with paragraph (e) of this 
section, an employee shall disqualify himself from participating in a 
particular matter in which, to his knowledge, he or any other person 
specified in the statute has a financial interest, if the particular 
matter will have a direct and predictable effect on that interest. 
Disqualification is accomplished by not participating in the particular 
matter.
    (1) Notification. An employee who becomes aware of the need to 
disqualify himself from participation in a particular matter to which 
he has been assigned should notify the person responsible for his 
assignment. An employee who is responsible for his own assignments 
should take whatever steps are necessary to ensure that he does not 
participate in the matter from which he is disqualified. Appropriate 
oral or written notification of the employee's disqualification may be 
made to coworkers by the employee or a supervisor to ensure that the 
employee is not involved in a matter from which he is disqualified.

[[Page 66845]]

    (2) Documentation. An employee need not file a written 
disqualification statement unless he is required by part 2634 of this 
chapter to file written evidence of compliance with an ethics agreement 
with the Office of Government Ethics, is asked by an agency ethics 
official or the person responsible for his assignment to file a written 
disqualification statement, or is required to do so by agency 
supplemental regulation issued pursuant to 5 CFR 2635.105. However, an 
employee may elect to create a record of his actions by providing 
written notice to a supervisor or other appropriate official.

    Example 1: The supervisor of an employee of the Department of 
Education asks the employee to attend a meeting on his behalf on 
developing national standards for science education in secondary 
schools. When the employee arrives for the meeting, she realizes one 
of the participants is the president of Education Consulting 
Associates (ECA), a firm which has been awarded a contract to 
prepare a bulletin describing the Department's policies on science 
education standards. The employee's spouse has a subcontract with 
ECA to provide the graphics and charts that will be used in the 
bulletin. Because the employee realizes that the meeting will 
involve matters relating to the production of the bulletin, the 
employee properly decides that she must disqualify herself from 
participating in the discussions. After withdrawing from the 
meeting, the employee should notify her supervisor about the reason 
for her disqualification. She may elect to put her disqualification 
statement in writing, or to simply notify her supervisor orally. She 
may also elect to notify appropriate coworkers about her need to 
disqualify herself from this matter.

    (e) Divestiture of a disqualifying financial interest. Upon sale or 
other divestiture of the asset or other interest that causes his 
disqualification from participation in a particular matter, an employee 
is no longer prohibited from acting in the particular matter.
    (1) Voluntary divestiture. An employee who would otherwise be 
disqualified from participation in a particular matter may voluntarily 
sell or otherwise divest himself of the interest that causes the 
disqualification.
    (2) Directed divestiture. An employee may be required to sell or 
otherwise divest himself of the disqualifying financial interest if his 
continued holding of that interest is prohibited by statute or by 
agency supplemental regulation issued in accordance with 
Sec. 2635.403(a) of this chapter, or if the agency determines in 
accordance with Sec. 2635.403(b) of this chapter that a substantial 
conflict exists between the financial interest and the employee's 
duties or accomplishment of the agency's mission.
    (3) Eligibility for special tax treatment. An employee who is 
directed to divest an interest may be eligible to defer the tax 
consequences of divestiture under subpart J of part 2634 of this 
chapter. An employee who divests before obtaining a certificate of 
divestiture will not be eligible for this special tax treatment.
    (f) Official duties that give rise to potential conflicts. Where an 
employee's official duties create a substantial likelihood that the 
employee may be assigned to a particular matter from which he is 
disqualified, the employee should advise his supervisor or other person 
responsible for his assignments of that potential so that conflicting 
assignments can be avoided, consistent with the agency's needs.

Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)


Sec. 2640.201  Exemptions for interests in mutual funds, unit 
investment trusts, and employee benefit plans.

    (a) Diversified mutual funds and unit investment trusts. An 
employee may participate in any particular matter affecting one or more 
holdings of a diversified mutual fund or a diversified unit investment 
trust where the disqualifying financial interest in the matter arises 
because of the ownership of an interest in the fund or trust.

    Example 1: An employee owns shares worth $100,000 in several 
mutual funds whose portfolios contain stock in a small computer 
company. Each mutual fund prospectus describes the fund as a 
``management company,'' but does not characterize the fund as having 
a policy of concentrating its investments in any particular 
industry, business, single country (other than the U.S.) or bonds of 
a single State. The employee may participate in agency matters 
affecting the computer company.
    Example 2: A nonsupervisory employee of the Department of Energy 
owns shares in a mutual fund that expressly concentrates its 
holdings in the stock of utility companies. The employee may not 
rely on the exemption in paragraph (a) of this section to act in 
matters affecting a utility company whose stock is part of the 
mutual fund's portfolio because the fund is not a diversified fund 
as defined in Sec. 2640.102(a). The employee may, however, seek an 
individual waiver under 18 U.S.C. 208(b)(1) permitting him to act. 
Moreover, depending upon the value of the employee's interest in the 
fund and the type of particular matter in which he would 
participate, one of the exemptions at Sec. 2640.202(a) or (b) for 
interests arising from publicly traded securities may be applicable.

    (b) Sector mutual funds. An employee may participate in any 
particular matter affecting one or more holdings of a sector mutual 
fund where the affected holding is not invested in the sector in which 
the fund concentrates, and where the disqualifying financial interest 
in the matter arises because of ownership of an interest in the fund.

    Example 1: An employee of the Federal Reserve owns shares in the 
mutual fund described in the preceding example. In addition to 
holdings in utility companies, the mutual fund contains stock in 
certain regional banks and bank holding companies whose financial 
interests would be affected by an investigation in which the Federal 
Reserve employee would participate. The employee is not disqualified 
from participating in the investigation because the banks that would 
be affected are not part of the sector in which the fund 
concentrates.

    (c) Employee benefit plans. An employee may participate in:
    (1) Any particular matter affecting one or more holdings of an 
employee benefit plan, where the disqualifying financial interest in 
the matter arises from membership in:
    (i) The Thrift Savings Plan for Federal employees described in 5 
U.S.C. 8437;
    (ii) A pension plan established or maintained by a State government 
or any political subdivision of a State government for its employees; 
or
    (iii) A diversified employee benefit plan, provided:
    (A) The investments of the plan are administered by an independent 
trustee, and the employee, or other person specified in section 208(a) 
does not participate in the selection of the plan's investments or 
designate specific plan investments (except for directing that 
contributions be divided among several different categories of 
investments, such as stocks, bonds or mutual funds, which are available 
to plan participants); and
    (B) The plan is not a profit-sharing or stock bonus plan.

    Note to paragraph (a)(1): Employee benefit plans that are tax 
deferred under 26 U.S.C. 401(k) are not considered profit-sharing 
plans for purposes of this section. However, for the exemption to 
apply, 401(k) plans must meet the requirements of paragraph 
(c)(1)(iii)(A) of this section.

    (2) Particular matters of general applicability, such as 
rulemaking, affecting the State or local government sponsor of a State 
or local government pension plan described in paragraph (c)(1)(ii) of 
this section where the disqualifying financial interest in the matter 
arises because of participation in the plan.

    Example 1: An attorney terminates his position with a law firm 
to take a position with the Department of Justice. As a result of 
his employment with the firm, the employee has interests in a 401(k) 
plan, the assets of which are invested primarily in stocks chosen by 
an independent financial management firm. He also participates in a

[[Page 66846]]

defined contribution pension plan maintained by the firm, the assets 
of which are stocks, bonds, and financial instruments. The plan is 
managed by an independent trustee. Assuming that the manager of the 
pension plan has a written policy of diversifying plan investments, 
the employee may act in matters affecting the plan's holdings. The 
employee may also participate in matters affecting the holdings of 
his 401(k) plan if the individual financial management firm that 
selects the plan's investments has a written policy of diversifying 
the plan's assets. Employee benefit plans that are tax deferred 
under 26 U.S.C. 401(k) are not considered profit-sharing or stock 
bonus plans for purposes of this part.
    Example 2: An employee of the Department of Agriculture who is a 
former New York State employee has a vested interest in a pension 
plan established by the State of New York for its employees. She may 
participate in an agency matter that would affect a company whose 
stock is in the pension plan's portfolio. She also may participate 
in a matter of general applicability affecting all States, including 
the State of New York, such as the drafting and promulgation of a 
rule requiring States to expend additional resources implementing 
the Food Stamp program. Unless she obtains an individual waiver 
under 18 U.S.C. 208(b)(1), she may not participate in a matter 
involving the State of New York as a party, such as an application 
by the State for additional Federal funding for administrative 
support services, if that matter would affect the State's ability or 
willingness to honor its obligation to pay her pension benefits.


Sec. 2640.202  Exemptions for interests in securities.

    (a) De minimis exemption for matters involving parties. An employee 
may participate in any particular matter involving specific parties in 
which the disqualifying financial interest arises from the ownership by 
the employee, his spouse or minor children of securities issued by one 
or more entities affected by the matter, if:
    (1) The securities are publicly traded, or are long-term Federal 
Government, or are municipal securities; and
    (2) The aggregate market value of the holdings of the employee, his 
spouse, and his minor children in the securities of all entities does 
not exceed $5,000.

    Example 1: An employee owns 100 shares of publicly traded stock 
valued at $3,000 in XYZ Corporation. As part of his official duties, 
the employee is evaluating bids for performing computer maintenance 
services at his agency and discovers that XYZ Corporation is one of 
the companies that has submitted a bid. The employee is not required 
to recuse himself from continuing to evaluate the bids.
    Example 2: In the preceding example, the employee and his spouse 
each own 100 shares of stock in XYZ Corporation, resulting in 
ownership of $6,000 worth of stock by the employee and his spouse. 
The exemption in paragraph (a) of this section would not permit the 
employee to participate in the evaluation of bids because the 
aggregate market value of the holdings of the employee, spouse and 
minor children in XYZ Corporation exceeds $5,000. The employee 
could, however, seek an individual waiver under 18 U.S.C. 208(b)(1) 
in order to participate in the evaluation of bids.
    Example 3: An employee is assigned to monitor XYZ Corporation's 
performance of a contract to provide computer maintenance services 
at the employee's agency. At the time the employee is first assigned 
these duties, he owns publicly traded stock in XYZ Corporation 
valued at less than $5,000. During the time the contract is being 
performed, however, the value of the employee's stock increases to 
$7,500. When the employee knows that the value of his stock exceeds 
$5,000, he must disqualify himself from any further participation in 
matters affecting XYZ Corporation or seek an individual waiver under 
18 U.S.C. 208(b)(1). Alternatively, the employee may divest the 
portion of his XYZ stock that exceeds $5,000. This can be 
accomplished through a standing order with his broker to sell when 
the value of the stock exceeds $5,000.

    (b) De minimis exemption for matters of general applicability. An 
employee may participate in any particular matter of general 
applicability, such as rulemaking, in which the disqualifying financial 
interest arises from the ownership by the employee, his spouse or minor 
children of securities issued by one or more entities affected by the 
matter, if:
    (i) The securities are publicly traded, or are municipal 
securities, the market value of which does not exceed:
    (A) $25,000 in any one such entity; and
    (B) $50,000 in all affected entities; or
    (ii) The securities are long-term Federal Government securities, 
the market value of which does not exceed $50,000.
    (2) For purposes of this paragraph (b), the value of securities 
owned by the employee, his spouse, and minor children must be 
aggregated in applying the exemption.

    Example 1: The Bureau of Export Administration at the Department 
of Commerce is in the process of formulating a regulation concerning 
exportation of portable computers. The regulation will affect all 
domestic companies that sell portable computers. An employee of the 
Department who is assisting in drafting the regulation owns $17,000 
worth of stock in CompAmerica and $20,000 worth of stock in XYZ 
Computer Inc. Even though the employee owns $37,000 worth of stock 
in companies that will be affected by the regulation, she may 
participate in drafting the regulation because the value of the 
securities she owns does not exceed $25,000 in any one affected 
company and the total value of stock owned in all affected companies 
does not exceed $50,000.
    Example 2: A health scientist administrator employed in the 
Public Health Service at the Department of Health and Human Services 
is assigned to serve on a Department-wide task force that will 
recommend changes in how Medicare reimbursements will be made to 
health care providers. The employee owns $10,000 worth of shares in 
a sector mutual fund invested primarily in health-related companies 
such as pharmaceuticals, developers of medical instruments and 
devices, managed care health organizations, and acute care 
hospitals. Because the fund is not a ``diversified mutual fund'' as 
defined in Sec. 2640.102(a), the exemption at Sec. 2640.201(a) is 
not applicable. However, because the fund is a ``publicly traded 
security'' as defined in Sec. 2640.102(p), the exemption for 
financial interests arising from ownership of a de minimis amount of 
securities at paragraph (b) of this section will permit the employee 
to participate on the task force.

    (c) Exemption for certain Federal Government securities. An 
employee may participate in any particular matter in which the 
disqualifying financial interest arises from the ownership of short-
term Federal Government securities or from U.S. Savings bonds.
    (d) Exemption for interests of tax-exempt organizations. An 
employee may participate in any particular matter in which the 
disqualifying financial interest arises from the ownership of publicly 
traded or municipal securities, or long-term Federal Government 
securities by an organization which is tax-exempt pursuant to 26 U.S.C. 
501(c) (3) or (4), and of which the employee is an unpaid officer, 
director, or trustee, or an employee, if:
    (1) The matter affects only the organization's investments, not the 
organization directly;
    (2) The employee plays no role in making investment decisions for 
the organization, except for participating in the decision to invest in 
several different categories of investments such as stocks, bonds, or 
mutual funds; and
    (3) The organization's only relationship to the issuer, other than 
that which arises from routine commercial transactions, is that of 
investor.

    Example 1: An employee of the Federal Reserve is a director of 
the National Association to Save Trees (NAST), an environmental 
organization that is tax-exempt under section 501(c)(3) of the 
Internal Revenue Code. The employee knows that NAST has an endowment 
fund that is partially invested in the publicly traded stock of 
Computer Inc. The employee's position at the Federal Reserve 
involves the procurement of computer software, including software 
marketed by Computer Inc. The employee may participate in the 
procurement of software from Computer Inc. provided that he is not 
involved in selecting NAST's investments, and that NAST has no 
relationship to Computer Inc. other than as

[[Page 66847]]

an investor in the company and routine purchaser of Computer Inc. 
software.

    (e) Exemption for certain interests of general partners. An 
employee may participate in any particular matter in which the 
disqualifying financial interest arises from:
    (1) The ownership of publicly traded securities, long-term Federal 
Government securities, or municipal securities by the employee's 
general partner, provided:
    (i) Ownership of the securities is not related to the partnership 
between the employee and his general partner, and
    (ii) The value of the securities does not exceed $200,000; or
    (2) Any interest of the employee's general partner if the 
employee's relationship to the general partner is as a limited partner 
in a partnership that has at least 100 limited partners.

    Example 1: An employee of the Department of Transportation is a 
general partner in a partnership that owns commercial property. The 
employee knows that one of his partners owns stock in an aviation 
company valued at $100,000 because the stock has been pledged as 
collateral for the purchase of the commercial property by the 
partnership. In the absence of an individual waiver under 18 U.S.C. 
208(b)(1), the employee may not act in a matter affecting the 
aviation company. Because the stock has been pledged as collateral, 
ownership of the securities is related to the partnership between 
the employee and his general partner.
    Example 2: An employee of the Pension Benefit Guaranty 
Corporation (PBGC) has a limited partnership interest in Ambank 
Partners, a large partnership with more than 500 limited partners. 
The partnership assets are invested in the securities of various 
financial institutions. Ambank's general partner is Capital 
Investment Services, an investment firm whose pension plan for its 
own employees is being examined by the PBGC for possible unfunded 
liabilities. Even though the employee's general partner (Capital 
Investment Services) has a financial interest in PBGC's review of 
the pension plan, the employee may participate in the review because 
his relationship with his general partner is that of a limited 
partner in a partnership that has at least 100 limited partners.


Sec. 2640.203  Miscellaneous exemptions.

    (a) Hiring decisions. An employee may participate in a hiring 
decision involving an applicant who is currently employed by a 
corporation that issues publicly traded securities, if the 
disqualifying financial interest arises from:
    (1) Ownership of publicly traded securities issued by the 
corporation; or
    (2) Participation in a vested pension plan sponsored by the 
corporation.
    (b) Employees on leave from institutions of higher education. An 
employee on a leave of absence from an institution of higher education 
may participate in any particular matter of general applicability 
affecting the financial interests of the institution from which he is 
on leave, provided that the matter will not have a special or distinct 
effect on that institution other than as part of a class.

    Example 1: An employee at the Department of Defense (DOD) is on 
a leave of absence from his position as a tenured Professor of 
Engineering at the University of California (UC) at Berkeley. While 
at DOD, he is assigned to assist in developing a regulation which 
will contain new standards for the oversight of grants given by DOD. 
Even though the University of California at Berkeley is a DOD 
grantee, and will be affected by these new monitoring standards, the 
employee may participate in developing the standards because UC 
Berkeley will be affected only as part of the class of all DOD 
grantees. However, if the new standards would affect the employee's 
own financial interest, such as by affecting his tenure or his 
salary, the employee could not participate in the matter unless he 
first obtains an individual waiver under section 208(b)(1).
    Example 2: An employee on leave from a university could not 
participate in the development of an agency program of grants 
specifically designed to facilitate research in jet propulsion 
systems where the employee's university is one of just two or three 
universities likely to receive a grant under the new program. Even 
though the grant announcement is open to all universities, the 
employee's university is among the very few known to have facilities 
and equipment adequate to conduct the research. The matter would 
have a distinct effect on the institution other than as part of a 
class.

    (c) Multi-campus institutions of higher education. An employee may 
participate in any particular matter affecting one campus of a State 
multi-campus institution of higher education, if the employee's 
disqualifying financial interest is employment in a position with no 
multi-campus responsibilities at a separate campus of the same multi-
campus institution.

    Example 1: A special Government employee (SGE) member of an 
advisory committee convened by the National Science Foundation is a 
full-time professor in the School of Engineering at one campus of a 
State university. The SGE may participate in formulating the 
committee's recommendation to award a grant to a researcher at 
another campus of the same State university system.
    Example 2: A member of the Board of Regents at a State 
university is asked to serve on an advisory committee established by 
the Department of Health and Human Services to consider applications 
for grants for human genome research projects. An application from 
another university that is part of the same State system will be 
reviewed by the committee. Unless he receives an individual waiver 
under section 208(b)(1) or (b)(3), the advisory committee member may 
not participate in matters affecting the second university that is 
part of the State system because as a member of the Board of 
Regents, he has duties and responsibilities that affect the entire 
State educational system.

    (d) Exemptions for financial interests arising from Federal 
Government employment or from Social Security or veterans' benefits. An 
employee may participate in any particular matter where the 
disqualifying financial interest arises from Federal Government or 
Federal Reserve Bank salary or benefits, or from Social Security or 
veterans' benefits, except an employee may not:
    (1) Make determinations that individually or specially affect his 
own salary and benefits; or
    (2) Make determinations, requests, or recommendations that 
individually or specially relate to, or affect, the salary or benefits 
of any other person specified in section 208.

    Example 1: An employee of the Office of Management and Budget 
may vigorously and energetically perform the duties of his position 
even though his outstanding performance would result in a 
performance bonus or other similar merit award.
    Example 2: A policy analyst at the Defense Intelligence Agency 
may request promotion to another grade or salary level. However, the 
analyst may not recommend or approve the promotion of her general 
partner to the next grade.
    Example 3: An engineer employed by the National Science 
Foundation may request that his agency pay the registration fees and 
appropriate travel expenses required for him to attend a conference 
sponsored by the Engineering Institute of America. However, the 
employee may not approve payment of his own travel expenses and 
registration fees unless he has been delegated, in advance, 
authority to make such approvals in accordance with agency policy.
    Example 4: A GS-14 attorney at the Department of Justice may 
review and make comments about the legal sufficiency of a bill to 
raise the pay level of all Federal employees paid under the General 
Schedule even though her own pay level, and that of her spouse who 
works at the Department of Labor, would be raised if the bill were 
to become law.
    Example 5: An employee of the Department of Veterans Affairs 
(VA) may assist in drafting a regulation that will provide expanded 
hospital benefits for veterans, even though he himself is a veteran 
who would be eligible for treatment in a hospital operated by the 
VA.
    Example 6: An employee of the Office of Personnel Management may 
participate in discussions with various health insurance providers 
to formulate the package of benefits that will be available to 
Federal employees who participate in the Government's Federal 
Employees Health Benefits Program, even though the employee will 
obtain health insurance from one of these providers through the 
program.

[[Page 66848]]

    Example 7: An employee of the Federal Supply Service Division of 
the General Services Administration (GSA) may participate in GSA's 
evaluation of the feasibility of privatizing the entire Federal 
Supply Service, even though the employee's own position would be 
eliminated if the Service were privatized.
    Example 8: Absent an individual waiver under section 208(b)(1), 
the employee in the preceding example could not participate in the 
implementation of a GSA plan to create an employee-owned private 
corporation which would carry out Federal Supply Service functions 
under contract with GSA. Because implementing the plan would result 
not only in the elimination of the employee's Federal position, but 
also in the creation of a new position in the new corporation to 
which the employee would be transferred, the employee would have a 
disqualifying financial interest in the matter arising from other 
than Federal salary and benefits, or Social Security or veterans 
benefits.
    Example 9: A career member of the Senior Executive Service (SES) 
at the Internal Revenue Service (IRS) may serve on a performance 
review board that makes recommendations about the performance awards 
that will be awarded to other career SES employees at the IRS. The 
amount of the employee's own SES performance award would be affected 
by the board's recommendations because all SES awards are derived 
from the same limited pool of funds. However, the employee's 
activities on the board involve only recommendations, and not 
determinations that individually or specially affect his own award. 
Additionally, 5 U.S.C. 5384(c)(2) requires that a majority of the 
board's members be career SES employees.
    Example 10: In carrying out a reorganization of the Office of 
General Counsel (OGC) of the Federal Trade Commission, the Deputy 
General Counsel is asked to determine which of five Senior Executive 
Service (SES) positions in the OGC to abolish. Because her own 
position is one of the five SES positions being considered for 
elimination, the matter is one that would individually or specially 
affect her own salary and benefits and, therefore, the Deputy may 
not decide which position should be abolished.

    Note to paragraph (d): This exemption does not permit an 
employee to take any action in violation of any other statutory or 
regulatory requirement, such as the prohibition on the employment of 
relatives at 5 U.S.C. 3110.

    (e) Commercial discount and incentive programs. An employee may 
participate in any particular matter affecting the sponsor of a 
discount, incentive, or other similar benefit program if the 
disqualifying financial interest arises because of participation in the 
program, provided:
    (1) The program is open to the general public; and
    (2) Participation in the program involves no other financial 
interest in the sponsor, such as stockholding.

    Example 1: An attorney at the Pension Benefit Guaranty 
Corporation who is a member of a frequent flier program sponsored by 
Alpha Airlines may assist in an action against Alpha for failing to 
make required payments to its employee pension fund, even though the 
agency action will cause Alpha to disband its frequent flier 
program.

    (f) Mutual insurance companies. An employee may participate in any 
particular matter affecting a mutual insurance company if the 
disqualifying financial interest arises because of an interest as a 
policyholder, unless the matter would affect the company's ability to 
pay claims required under the terms of the policy or to pay the cash 
value of the policy.
    Example 1: An administrative law judge at the Department of 
Labor receives dividends from a mutual insurance company which he 
takes in the form of reduced premiums on his life insurance policy. 
The amount of the dividend is based upon the company's overall 
profitability. Nevertheless, he may preside in a Department hearing 
involving a major corporation insured by the same company even 
though the insurance company will have to pay the corporation's 
penalties and other costs if the Department prevails in the hearing.
    Example 2: An employee of the Department of Justice is assigned 
to prosecute a case involving the fraudulent practices of an issuer 
of junk bonds. While developing the facts pertinent to the case, the 
employee learns that the mutual life insurance company from which he 
holds a life insurance policy has invested heavily in these junk 
bonds. If the Government succeeds in its case, the bonds will be 
worthless and the corresponding decline in the insurance company's 
investments will impair the company's ability to pay claims under 
the policies it has issued. The employee may not continue assisting 
in the prosecution of the case unless he obtains an individual 
waiver pursuant to section 208(b)(1).

    (g) Exemption for employment interests of special Government 
employees serving on advisory committees. A special Government employee 
serving on an advisory committee within the meaning of the Federal 
Advisory Committee Act (5 U.S.C. app.) may participate in any 
particular matter of general applicability where the disqualifying 
financial interest arises from his non-Federal employment or non-
Federal prospective employment, provided that the matter will not have 
a special or distinct effect on the employee or employer other than as 
part of a class. For purposes of this paragraph, ``disqualifying 
financial interest'' arising from non-Federal employment does not 
include the interests of a special Government employee arising from the 
ownership of stock in his employer or prospective employer.

    Example 1: A chemist employed by a major pharmaceutical company 
has been appointed to serve on an advisory committee established to 
develop recommendations for new standards for AIDS vaccine trials 
involving human subjects. Even though the chemist's employer is in 
the process of developing an experimental AIDS vaccine and therefore 
will be affected by the new standards, the chemist may participate 
in formulating the advisory committee's recommendations. The 
chemist's employer will be affected by the new standards only as 
part of the class of all pharmaceutical companies and other research 
entities that are attempting to develop an AIDS vaccine.
    Example 2: The National Cancer Institute (NCI) has established 
an advisory committee to evaluate a university's performance of an 
NCI grant to study the efficacy of a newly developed breast cancer 
drug. An employee of the university may not participate in the 
evaluation of the university's performance because it is not a 
matter of general applicability.
    Example 3: An engineer whose principal employment is with a 
major Department of Defense (DOD) contractor is appointed to serve 
on an advisory committee established by DOD to develop concepts for 
the next generation of laser-guided missiles. The engineer's 
employer, as well as a number of other similar companies, has 
developed certain missile components for DOD in the past, and has 
the capability to work on aspects of the newer missile designs under 
consideration by the committee. The engineer owns $20,000 worth of 
stock in his employer. Because the exemption for the employment 
interests of special Government employees serving on advisory 
committees does not extend to financial interests arising from the 
ownership of stock, the engineer may not participate in committee 
matters affecting his employer unless he receives an individual 
waiver under section 208(b)(1) or (b)(3), or determines whether the 
exemption for interests in securities at Sec. 2640.202(b) applies.

    (h) Directors of Federal Reserve Banks. A Director of a Federal 
Reserve Bank or a branch of a Federal Reserve Bank may participate in 
the following matters, even though they may be particular matters in 
which he, or any other person specified in section 208(a), has a 
disqualifying financial interest:
    (1) Establishment of rates to be charged for all advances and 
discounts by Federal Reserve Banks;
    (2) Consideration of monetary policy matters, regulations, statutes 
and proposed or pending legislation, and other matters of broad 
applicability intended to have uniform application to banks within the 
Reserve Bank district;
    (3) Approval or ratification of extensions of credit, advances or 
discounts to a depository institution that has not been determined to 
be in a

[[Page 66849]]

hazardous financial condition by the President of the Reserve Bank; or
    (4) Approval or ratification of extensions of credit, advances or 
discounts to a depository institution that has been determined to be in 
a hazardous financial condition by the President of the Reserve Bank, 
provided that the disqualifying financial interest arises from the 
ownership of stock in, or service as an officer, director, trustee, 
general partner or employee, of an entity other than the depository 
institution, or its parent holding company or subsidiary of such 
holding company.
    (i) Medical products. A special Government employee serving on an 
advisory committee within the meaning of the Federal Advisory Committee 
Act (5 U.S.C. app.) may participate in Federal advisory committee 
matters concerning medical products if the disqualifying financial 
interest arises from:
    (1) Employment with a hospital or other similar medical facility 
whose only interest in the medical product or device is purchase of it 
for use by, or sale to, its patients; or
    (2) The use or prescription of medical products for patients.
    (j) Nonvoting members of standing technical advisory committees 
established by the Food and Drug Administration. A special Government 
employee serving as a nonvoting representative member of an advisory 
committee established by the Food and Drug Administration pursuant to 
the requirements of the Federal Advisory Committee Act (5 U.S.C. app.) 
and appointed under a statutory authority requiring the appointment of 
representative members, may participate in any particular matter 
affecting a disqualifying financial interest in the class which the 
employee represents. Nonvoting representative members of Food and Drug 
Administration advisory committees are described in 21 CFR 14.80(b)(2), 
14.84, 14.86, and 14.95(a).

    Example 1: The FDA's Medical Devices Advisory Committee is 
established pursuant to 21 U.S.C. 360c(b), which requires that each 
panel of the Committee include one nonvoting industry representative 
and one nonvoting consumer representative. An industry 
representative on the Ophthalmic Devices Panel of this Committee has 
been appointed as a special Government employee, in accordance with 
the procedures described at 14 CFR 14.84. The special Government 
employee may participate in Panel discussions concerning the 
premarket approval application for a silicone posterior chamber 
intraocular lens manufactured by MedInc, even though she is employed 
by, and owns stock in, another company that manufactures a competing 
product. However, a consumer representative who serves as a special 
Government employee on the same Panel may not participate in Panel 
discussions if he owns $30,000 worth of stock in MedInc unless he 
first obtains an individual waiver under 18 U.S.C. 208 (b)(1) or 
(b)(3).

    (k) Employees of the Tennessee Valley Authority. An employee of the 
Tennessee Valley Authority (TVA) may participate in developing or 
approving rate schedules or similar matters affecting the general cost 
of electric power sold by TVA, if the disqualifying financial interest 
arises from use of such power by the employee or by any other person 
specified in section 208(a).


Sec. 2640.204  Prohibited financial interests.

    None of the exemptions set forth in Secs. 2640.201, 2640.202, or 
2640.203 apply to any financial interest held or acquired by an 
employee, his spouse, or minor child in violation of a statute or 
agency supplemental regulation issued in accordance with 5 CFR 
2635.105, or that is otherwise prohibited under 5 CFR 2635.403(b).

    Example 1: The Office of the Comptroller of the Currency (OCC), 
in a regulation that supplements part 2635 of this chapter, 
prohibits certain employees from owning stock in commercial banks. 
If an OCC employee purchases stock valued at $2,000 in contravention 
of the regulation, the exemption at Sec. 2640.202(a) for interests 
arising from the ownership of no more than $5,000 worth of publicly 
traded stock will not apply to the employee's participation in 
matters affecting the bank.


Sec. 2640.205  Employee responsibility.

    Prior to taking official action in a matter which an employee knows 
would affect his financial interest or the interest of another person 
specified in 18 U.S.C. 208(a), an employee must determine whether one 
of the exemptions in Secs. 2640.201, 2640.202, or 2640.203 would permit 
his action notwithstanding the existence of the disqualifying interest. 
An employee who is unsure whether an exemption is applicable in a 
particular case, should consult an agency ethics official prior to 
taking action in a particular matter.


Sec. 2640.206  Existing agency exemptions.

    An employee who, prior to January 17, 1997, acted in an official 
capacity in a particular matter in which he had a financial interest, 
will be deemed to have acted in accordance with applicable regulations 
if he acted in reliance on an exemption issued by his employing 
Government agency pursuant to 18 U.S.C. 208(b)(2), as in effect prior 
to November 30, 1989.

Subpart C--Individual Waivers


Sec. 2640.301  Waivers issued pursuant to 18 U.S.C. 208(b)(1).

    (a) Requirements for issuing an individual waiver under 18 U.S.C. 
208(b)(1). Pursuant to 18 U.S.C. 208(b)(1), an agency may determine in 
an individual case that a disqualifying financial interest in a 
particular matter or matters is not so substantial as to be deemed 
likely to affect the integrity of the employee's services to the 
Government. Upon making that determination, the agency may then waive 
the employee's disqualification notwithstanding the financial interest, 
and permit the employee to participate in the particular matter. 
Waivers issued pursuant to section 208(b)(1) should comply with the 
following requirements:
    (1) The disqualifying financial interest, and the nature and 
circumstances of the particular matter or matters, must be fully 
disclosed to the Government official responsible for appointing the 
employee to his position (or other Government official to whom 
authority to issue such a waiver for the employee has been delegated);
    (2) The waiver must be issued in writing by the Government official 
responsible for appointing the employee to his position (or other 
Government official to whom the authority to issue such a waiver for 
the employee has been delegated);
    (3) The waiver should describe the disqualifying financial 
interest, the particular matter or matters to which it applies, the 
employee's role in the matter or matters, and any limitations on the 
employee's ability to act in such matters;
    (4) The waiver shall be based on a determination that the 
disqualifying financial interest is not so substantial as to be deemed 
likely to affect the integrity of the employee's services to the 
Government. Statements concerning the employee's good character are not 
material to, nor a basis for making, such a decision;
    (5) The waiver must be issued prior to the employee taking any 
action in the matter or matters; and
    (6) The waiver may apply to both present and future financial 
interests, provided the interests are described with sufficient 
specificity.

    Note to paragraph (a): The disqualifying financial interest, the 
particular matter or matters to which the waiver applies, and the 
employee's role in such matters do not need to be described with any 
particular degree of specificity. For example, if a waiver were to 
apply to all matters which an employee would undertake as part of 
his official duties,

[[Page 66850]]

the waiver document would not have to enumerate those duties. The 
information contained in the waiver, however, should provide a clear 
understanding of the nature and identity of the disqualifying 
financial interest, the matters to which the waiver will apply, and 
the employee's role in such matters.

    (b) Agency determination concerning substantiality of the 
disqualifying financial interest. In determining whether a 
disqualifying financial interest is sufficiently substantial to be 
deemed likely to affect the integrity of the employee's services to the 
Government, the responsible official may consider the following 
factors:
    (1) The type of interest that is creating the disqualification 
(e.g. stock, bonds, real estate, other securities, cash payment, job 
offer, or enhancement of a spouse's employment);
    (2) The identity of the person whose financial interest is 
involved, and if the interest is not the employee's, the relationship 
of that person to the employee;
    (3) The dollar value of the disqualifying financial interest, if it 
is known or can be estimated (e.g. the amount of cash payment which may 
be gained or lost, the salary of the job which will be gained or lost, 
the predictable change in either the market value of the stock or the 
actual or potential profit or loss or cost of the matter to the company 
issuing the stock, the change in the value of real estate or other 
securities);
    (4) The value of the financial instrument or holding from which the 
disqualifying financial interest arises (e.g. the face value of the 
stock, bond, other security or real estate) and its value in 
relationship to the individual's assets. If the disqualifying financial 
interest is that of a general partner or organization specified in 
section 208, this information must be provided only to the extent that 
it is known by the employee; and
    (5) The nature and importance of the employee's role in the matter, 
including the extent to which the employee is called upon to exercise 
discretion in the matter.
    (6) Other factors which may be taken into consideration include:
    (i) The sensitivity of the matter;
    (ii) The need for the employee's services in the particular matter; 
and
    (iii) Adjustments that may be made in the employee's duties that 
would reduce or eliminate the likelihood that the integrity of the 
employee's services would be questioned by a reasonable person.


Sec. 2640.302  Waivers issued pursuant to 18 U.S.C. 208(b)(3).

    (a) Requirements for issuing an individual waiver under 18 U.S.C. 
208(b)(3). Pursuant to 18 U.S.C. 208(b)(3), an agency may determine in 
an individual case that the prohibition of 18 U.S.C. 208(a) should not 
apply to a special Government employee serving on, or an individual 
being considered for, appointment to an advisory committee established 
under the Federal Advisory Committee Act, notwithstanding the fact that 
the individual has one or more financial interests that would be 
affected by the activities of the advisory committee. The agency's 
determination must be based on a certification that the need for the 
employee's services outweighs the potential for a conflict of interest 
created by the financial interest involved. Waivers issued pursuant to 
18 U.S.C. 208(b)(3) should comply with the following requirements:
    (1) The advisory committee upon which the individual is serving, or 
will serve, is an advisory committee within the meaning of the Federal 
Advisory Committee Act, 5 U.S.C. app.;
    (2) The waiver must be issued in writing by the Government official 
responsible for the individual's appointment (or other Government 
official to which authority to issue such waivers has been delegated) 
after the official reviews the financial disclosure report filed by the 
individual pursuant to the Ethics in Government Act of 1978;
    (3) The waiver must include a certification that the need for the 
individual's services on the advisory committee outweighs the potential 
for a conflict of interest;
    (4) The facts upon which the certification is based should be fully 
described in the waiver, including the nature of the financial 
interest, and the particular matter or matters to which the waiver 
applies;
    (5) The waiver should describe any limitations on the individual's 
ability to act in the matter or matters;
    (6) The waiver must be issued prior to the individual taking any 
action in the matter or matters; and
    (7) The waiver may apply to both present and future financial 
interests of the individual, provided the interests are described with 
sufficient specificity.
    (b) Agency certification concerning need for individual's services. 
In determining whether the need for an individual's services on an 
advisory committee outweighs the potential for a conflict of interest 
created by the disqualifying financial interest, the responsible 
official may consider the following factors:
    (1) The type of interest that is creating the disqualification 
(e.g. stock, bonds, real estate, other securities, cash payment, job 
offer, or enhancement of a spouse's employment);
    (2) The identity of the person whose financial interest is 
involved, and if the interest is not the individual's, the relationship 
of that person to the individual;
    (3) The uniqueness of the individual's qualifications;
    (4) The difficulty of locating a similarly qualified individual 
without a disqualifying financial interest to serve on the committee;
    (5) The dollar value of the disqualifying financial interest, if it 
is known or can be estimated (e.g. the amount of cash payment which may 
be gained or lost, the salary of the job which will be gained or lost, 
the predictable change in either the market value of the stock or the 
actual or potential profit or loss or cost of the matter to the company 
issuing the stock, the change in the value of real estate or other 
securities);
    (6) The value of the financial instrument or holding from which the 
disqualifying financial interest arises (e.g. the face value of the 
stock, bond, other security or real estate) and its value in 
relationship to the individual's assets. If the disqualifying financial 
interest is that of a general partner or organization specified in 
section 208, this information must be provided only to the extent that 
it is known by the employee; and
    (7) The extent to which the disqualifying financial interest will 
be affected individually or particularly by the actions of the advisory 
committee.


Sec. 2640.303  Consultation and notification regarding waivers.

    When practicable, an official is required to consult formally or 
informally with the Office of Government Ethics prior to granting a 
waiver referred to in Secs. 2640.301 and 2640.302. A copy of each such 
waiver is to be forwarded to the Director of the Office of Government 
Ethics.


Sec. 2640.304  Public availability of agency waivers.

    (a) Availability. A copy of an agency waiver issued pursuant to 18 
U.S.C. 208 (b)(1) or (b)(3) shall be made available upon request to the 
public by the issuing agency. Public release of waivers shall be in 
accordance with the procedures set forth in section 105 of the Ethics 
in Government Act of 1978, as amended. Those procedures are described 
in 5 CFR 2634.603.

[[Page 66851]]

    (b) Limitations on availability. In making a waiver issued pursuant 
to 18 U.S.C. 208 (b)(1) or (b)(3) publicly available, an agency:
    (1) May withhold from public disclosure any information contained 
in the waiver that would be exempt from disclosure pursuant to 5 U.S.C. 
552; and
    (2) Shall withhold from public disclosure information in a waiver 
issued pursuant to 18 U.S.C. 208(b)(3) concerning an individual's 
financial interest which is more extensive than that required to be 
disclosed by the individual in his financial disclosure report under 
the Ethics in Government Act of 1978, as amended, or which is otherwise 
subject to a prohibition on public disclosure under law.

[FR Doc. 96-31837 Filed 12-17-96; 8:45 am]
BILLING CODE 6345-01-P