[Federal Register Volume 67, Number 53 (Tuesday, March 19, 2002)]
[Rules and Regulations]
[Pages 12443-12446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6617]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 67, No. 53 / Tuesday, March 19, 2002 / Rules
and Regulations
[[Page 12443]]
OFFICE OF GOVERNMENT ETHICS
5 CFR Part 2640
RIN 3209-AA09
Exemption Amendments Under 18 U.S.C. 208(b)(2)
AGENCY: Office of Government Ethics (OGE).
ACTION: Final rule amendments.
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SUMMARY: The Office of Government Ethics is issuing a final rule to
amend the regulation that describes financial interests that are exempt
from the prohibition in 18 U.S.C. 208(a). These final rule amendments
revise the existing exemption regulation by: creating a new exemption
for sector mutual funds; raising the de minimis exemption for matters
affecting interests in securities from $5,000 to $15,000; and creating
an exemption that permits an employee to act in certain particular
matters that affect an entity in which the employee owns securities,
where the entity is not a party to the matter.
EFFECTIVE DATE: April 18, 2002.
FOR FURTHER INFORMATION CONTACT: Richard Thomas, Associate General
Counsel, Office of Government Ethics; Telephone: 202-208-8000; TDD:
202-208-8025; FAX: 202-208-8037.
SUPPLEMENTARY INFORMATION:
I. Rulemaking History
Section 208(a) generally prohibits employees of the executive
branch from participating in an official capacity in particular matters
in which they or certain others specified in the statute have a
financial interest. Section 208(b)(2) of title 18 permits OGE to
promulgate regulations describing financial interests that are exempted
as being too remote or inconsequential to warrant disqualification
pursuant to section 208(a). The Office of Government Ethics' executive
branchwide section 208 regulations, including such exemptions, are
codified at 5 CFR part 2640.
On September 6, 2000, OGE published a set of proposed amendments to
the regulation, proposing to revise some existing exemptions as well as
to add some new exemptions. See 65 FR 53942-53946. The proposed rule
provided a 90-day comment period. The Office of Government Ethics
received 13 comment letters on the proposed rule. After carefully
considering all comments and making appropriate modifications, OGE is
publishing this final rule after obtaining the concurrence of the
Department of Justice pursuant to section 201(c) of Executive Order
12674, as modified by E.O. 12731. Also, as provided in section 402 of
the Ethics in Government Act of 1978, as amended, 5 U.S.C. appendix,
section 402, OGE has consulted with both the Department of Justice (as
additionally required under 18 U.S.C. 208(d)(2)) and the Office of
Personnel Management on this final rule.
II. Analysis of Comments and Revisions
Of the thirteen comments submitted, ten were from executive branch
Departments or agencies, one was from a professional association, and
two were from individuals. Overall, the comments to the proposed rule
were positive. Many commenters had specific suggestions pertaining to
one or more components of the proposed rule. Two commenters expressed
the view that the OGE Form 450 and SF 278 reporting requirements should
be revised to no longer require a filer to disclose on his form assets
which are exempt under 5 CFR part 2640. These reporting issues are
separate and distinct from the issue of whether an exemption is
warranted under section 208(b)(2). Although OGE will not address
specific reporting issues in this rulemaking, comments relating to
financial disclosure requirements have been considered as part of OGE's
separate proposed revision of the Ethics in Government Act, as amended.
The analysis below focuses on changes from the proposed amendments,
either as recommended by the commenters or which OGE believes are
otherwise appropriate. Many of the amendments proposed are being
adopted as final without change in this rulemaking document.
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
Sector Mutual Funds
Several commenters recommended that OGE revise the proposed
exemption for sector mutual funds to provide a total, rather than a
$50,000 de minimis exemption. Two commenters suggested raising the de
minimis amount. The Office of Government Ethics believes that the
$50,000 de minimis exemption amount proposed is appropriate and is
adopting it as final in Sec. 2640.201(b) as revised. Establishing a
total exemption for all employees would be difficult in light of the
legal standard that the exempted interest be ``remote and
inconsequential.'' The $50,000 exemption being adopted is reasonably
considered remote and inconsequential for all employees and is
consistent with the de minimis exemption for particular matters of
general applicability in existing paragraph (b) of Sec. 2640.202, which
is being redesignated as paragraph (c) thereof (see below).
This final rule contains one technical correction of the wording in
the proposed rule. In the proposed rule, OGE inadvertently proposed
limiting the existing exemption for sector mutual funds at
Sec. 2640.201(b) by restricting the exemption to disqualifying
financial interests arising from the ownership by the employee, his
spouse or minor children of an interest in the fund. Consistent with
the original exemption for sector mutual funds, OGE intended that the
new exemption would include interests held by an employee and all the
others whose financial interests are imputed to him under 18 U.S.C.
208. This is reflected in the final rule by tracking the reference in
the existing paragraph (b) of Sec. 2640.201 prior to this amendment.
The wording and structure of the exemption also have been modified
somewhat in this final rule to clarify its meaning.
[[Page 12444]]
Section 2640.202 Exemptions for Interests in Securities
De Minimis Exemption for Matters Involving Parties
Several commenters were pleased with the proposed increase (now
being adopted as final) in the de minimis exemption amount for
securities in particular matters involving specific parties from $5,000
to $15,000, under Sec. 2640.202(a) as proposed for revision. However,
one commenter stated that the increase in the de minimis amount would
lead to greater intrusion into the privacy of filers, by reducing the
number of reported assets, but probing further into the values of
assets not previously required to be reported on the OGE Form 450. As
an initial matter, raising the de minimis amount will not affect the
OGE Form 450 filer's reporting requirements. In addition, as mentioned
earlier, the reporting requirements for both the OGE Form 450 and the
SF 278 are separate matters from the focus of this rulemaking, which
addresses whether certain financial interests are too remote or
inconsequential under section 208(b)(2) to warrant disqualification
under 18 U.S.C. 208(a).
De Minimis Exemption for Matters Affecting Nonparties
The Office of Government Ethics received varied comments in
response to proposed new Sec. 2640.203(m). Under that section, as
proposed, an employee would have been able to participate in certain
matters in litigation involving specific parties in which the employee
had a disqualifying financial interest of up to $25,000 in securities
issued by a nonparty affected by the litigation. Two commenters were
generally satisfied with the proposed rule. Of those who expressed some
dissatisfaction with the proposed rule, two recommended broadening the
rule to encompass any particular matter affecting nonparties, rather
than limiting the rule to matters in litigation. Two commenters
recommended including an example or definitions.
The Office of Government Ethics' original proposed part 2640
regulations, published for comment in the Federal Register on September
11, 1995, included a proposed exemption for disqualifying interests
arising from ownership of securities issued by a nonparty. See 60 FR
27228. In the comments to that proposed rule, some agencies expressed a
concern that this specific proposed exemption would be too complex. As
a result, OGE decided not to include the exemption in its final version
of 5 CFR part 2640. Over the years, however, some agencies have
continued to express a need for such an exemption. The strongest
advocate stressed the need for an exemption for matters in litigation
affecting nonparties, so OGE included this exemption in the proposed
regulation published on September 6, 2000. As noted, two commenters to
the proposed amendments supported broadening this exemption,
essentially recommending that OGE establish in this final rule the
exemption as proposed in September 1995. After additional
consideration, OGE has decided to adopt in revised Sec. 2640.202(b) of
this final rule a broader exemption than that proposed, so as to
include any particular matter involving specific parties, not just
matters in litigation. Because of its broadened scope, this new
exemption is being moved to the primary section for interests in
securities at Sec. 2640.202. The broader rule will be more useful to a
greater range of agencies and will simplify the exemption by
eliminating the need for determining whether a matter constitutes
``litigation.''
Moreover, to address the commenters' recommendations and to clarify
the rule, OGE is adding an example to the exemption. One commenter
requested that OGE define ``nonparty'' and offer guidance on how to
identify nonparties and determine if they are affected by a matter.
Because each situation may vary to such a degree that the question is
best addressed on a case-by-case basis, OGE will not define
``nonparty'' in this rulemaking. The Office of Government Ethics
believes that the example now provided will promote a clearer
understanding of the application of this exemption.
In the proposed rule, OGE proposed to revise Example 2 after
Sec. 2640.203(f), relating to interests in mutual insurance companies,
to suggest that the proposed Sec. 2640.203(m) for matters in litigation
could apply in the situation described in the example. Upon reflection,
that suggestion was incorrect because the interests of a policy holder
with a mutual insurance company would not fall within the definition of
``security'' at Sec. 2640.102(r). Accordingly, this final rule does not
contain any amendment to that example.
The rule as proposed for particular matters affecting nonparties
will be revised as described above and redesignated as new paragraph
(b) of Sec. 2640.202. Existing paragraphs (b) through (e) of current
Sec. 2640.202 are being redesignated as paragraphs (c) through (f),
respectively, of that section.
In addition, several existing examples in part 2640 are being
revised (as proposed) to reflect the new de minimis exemption amounts.
III. 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.
Executive Order 12988
As Director of the Office of Government Ethics, I have reviewed
this final amendatory regulation in light of section 3 of Executive
Order 12988, Civil Justice Reform, and certify that it meets the
applicable standards provided therein.
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 proposed
amendatory rule will not have a significant economic 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.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
chapter 25, subchapter II), this final rule will not significantly or
uniquely affect small governments and will not result in increased
expenditures by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more (as adjusted for
inflation) in any one year.
Congressional Review Act
The Office of Government Ethics has determined that this proposed
rulemaking involves a nonmajor rule under the Congressional Review Act
(5 U.S.C. chapter 8) and has submitted a report thereon to the U.S.
Senate, House of Representatives and General Accounting Office in
accordance with that law.
List of Subjects in 5 CFR Part 2640
Conflicts of interests, Government employees.
[[Page 12445]]
Approved: November 16, 2001.
Amy L. Comstock,
Director, Office of Government Ethics.
Accordingly, for the reasons set forth in the preamble, the Office
of Government Ethics is amending 5 CFR part 2640 as follows:
PART 2640--INTERPRETATION, EXEMPTIONS AND WAIVER GUIDANCE
CONCERNING 18 U.S.C. 208 (ACTS AFFECTING A PERSONAL FINANCIAL
INTEREST)
1. The authority citation for part 2640 continues to read as
follows:
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
2. Section 2640.102 is amended by revising paragraph (r) to read as
follows:
Sec. 2640.102 Definitions.
* * * * *
* * * * *
(r) Security means common stock, preferred stock, corporate bond,
municipal security, long-term Federal Government security, and limited
partnership interest. The term also includes ``mutual fund'' for
purposes of Sec. 2640.202(e) and (f) and Sec. 2640.203(a).
* * * * *
3. Section 2640.103 is amended by revising Example 1 following
paragraph (a)(2) to read as follows:
Sec. 2640.103 Prohibition.
(a) * * *
(2) * * *
Example 1 to paragraph (a)(2): 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 $20,000 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.
* * * * *
Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)
4. Section 2640.201 is amended by:
a. Revising the heading of Example 1 and revising Example 2
following paragraph (a);
b. Revising paragraph (b); and
c. Revising the heading of Example 1 and adding new Examples 2 and
3 following new paragraph (b)(2)(ii).
The revisions and additions read as follows:
Sec. 2640.201 Exemptions for interests in mutual funds, unit
investment trusts, and employee benefit plans.
(a) * * *
Example 1 to paragraph (a): * * *
Example 2 to paragraph (a): A nonsupervisory employee of the
Department of Energy owns shares valued at $75,000 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 a 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.
(b) Sector mutual funds. (1) 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.
(2)(i) An employee may participate in a particular matter affecting
one or more holdings of a sector mutual fund where the disqualifying
financial interest in the matter arises because of ownership of an
interest in the fund and the aggregate market value of interests in any
sector fund or funds does not exceed $50,000.
(ii) For purposes of calculating the $50,000 de minimis amount in
paragraph (b)(2)(i) of this section, an employee must aggregate the
market value of all sector mutual funds in which he has a disqualifying
financial interest and that concentrate in the same sector and have one
or more holdings that may be affected by the particular matter.
Example 1 to paragraph (b): * * *
Example 2 to paragraph (b): A health scientist administrator
employed in the Public Health Service at the Department of Health
and Human Services is assigned to serve on a Departmentwide task
force that will recommend changes in how Medicare reimbursements
will be made to health care providers. The employee owns $35,000
worth of shares in the XYZ Health Sciences Fund, 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. The
health scientist administrator may participate in the
recommendations.
Example 3 to paragraph (b): The spouse of the employee in the
previous Example owns $40,000 worth of shares in ABC Specialized
Portfolios: Healthcare, a sector mutual fund that also concentrates
its investments in health-related companies. The two funds focus on
the same sector and both contain holdings that may be affected by
the particular matter. Because the aggregated value of the two funds
exceeds $50,000, the employee may not rely on the exemption.
* * * * *
5. Section 2640.202 is amended by:
a. Revising paragraph (a)(2);
b. Revising the heading of Example 1 and revising Examples 2 and 3
following paragraph (a)(2);
c. Redesignating paragraphs (b) through (e) as paragraphs (c)
through (f), respectively;
d. Adding a new paragraph (b);
e. Adding new Example 1 following new paragraph (b)(2); and
f. Revising the heading of Example 1 and removing Example 2
following redesignated paragraph (c)(2).
The revisions and additions read as follows:
Sec. 2640.202 Exemptions for interests in securities.
(a) * * *
(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 $15,000.
Example 1 to paragraph (a): * * *
Example 2 to paragraph (a): In the preceding example, the
employee and his spouse each own $8,000 worth of stock in XYZ
Corporation, resulting in ownership of $16,000 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 $15,000. 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 to paragraph (a): 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 $15,000. During the
time the contract is being performed, however, the value of the
employee's stock increases to $17,500. When the employee knows that
the value of his stock exceeds $15,000, 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 $15,000. This can be
[[Page 12446]]
accomplished through a standing order with his broker to sell when
the value of the stock exceeds $15,000.
(b) De minimis exemption for matters affecting nonparties. 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 that are not parties to the matter but
that are affected by the matter, if:
(1) The securities are publicly traded, or are long-term Federal
Government or municipal securities; and
(2) The aggregate market value of the holdings of the employee, his
spouse and minor children in the securities of all affected entities
(including securities exempted under paragraph (a) of this section)
does not exceed $25,000.
Example 1 to paragraph (b): A Food and Drug Administration
advisory committee is asked to review a new drug application from
Alpha Drug Co. for a new lung cancer drug. A member of the advisory
committee owns $20,000 worth of stock in Mega Drug Co., which
manufactures the only similar lung cancer drug on the market. If
approved, the Alpha Drug Co.'s drug would directly compete with the
drug sold by the Mega Drug Co., resulting in decreased sales of its
lung cancer drug. The committee member may participate in the review
of the new drug.
(c) * * *
Example 1 to paragraph (c): * * *
* * * * *
6. Section 2640.204 is amended by revising Example 1 which follows
the section to read as follows:
Sec. 2640.204 Prohibited financial interests.
* * * * *
Example 1 to Sec. 2640.204: 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 $15,000 worth of publicly traded stock will not apply to the
employee's participation in matters affecting the bank.
[FR Doc. 02-6617 Filed 3-18-02; 8:45 am]
BILLING CODE 6345-01-U