[Federal Register Volume 76, Number 191 (Monday, October 3, 2011)]
[Rules and Regulations]
[Pages 61046-61052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-25443]
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DEPARTMENT OF THE TREASURY
31 CFR Part 31
RIN 1505-AC05
TARP Conflicts of Interest
AGENCY: Departmental Offices, Treasury.
ACTION: Final rule.
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SUMMARY: On January 21, 2009, the Department issued an interim rule
that provided guidance on conflicts of interest pursuant to Section 108
of the Emergency Economic Stabilization Act of 2008 (``EESA''), which
was enacted on October 3, 2008. This final rule takes into account the
public comments received and adopts revisions to the interim rule.
DATES: Effective date: November 2, 2011.
FOR FURTHER INFORMATION CONTACT: For further information regarding this
final rule contact the Troubled Asset Relief Program Compliance Office,
Office of Financial Stability, Department of the Treasury, 1500
Pennsylvania Avenue, Washington, DC, 20220, (202) 622-2000, or
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
Pursuant to Section 108 of EESA (Pub. L. 110-343; 122 Stat. 3765),
which authorizes the Secretary of the Treasury to issue regulations or
guidelines necessary to address and manage or to prohibit conflicts of
interest that may arise in connection with the administration and
execution of the EESA authorities, Treasury promulgated an interim
final rule on conflicts of interest on January 21, 2009 (``Interim
Rule'') (74 FR 3431). Treasury invited the public to submit comments on
the Interim Rule and received requests from several commentators
requesting that Treasury modify aspects of the Interim Rule. Treasury
carefully considered all comments received and, in section II of this
rule, discusses the comments received and sets out modifications in
this final rule.
The January 21, 2009, interim rule's provisions are available at 74
FR 3431. The interim rule defines organizational and personal conflicts
of interest. Further, the interim rule sets forth: (1) The requirements
for retained entities to search for, disclose, certify to, and mitigate
organizational or personal conflicts of interest, (2) general standards
related to the handling of conflicts of interest, favors, gifts,
Treasury property, and items of monetary value, (3) limits on retained
entities' activities concurrently with providing services to Treasury,
(4) limits on retained entities' communications with Treasury
employees, (5) requirements with respect to the receipt and handling of
nonpublic information, and (6) enforcement powers with respect to the
interim rule.
II. Summary of Comments, Treasury's Resulting Changes, and Final Rule
Treasury is promulgating this rule to finalize the Interim Rule
issued on January 21, 2009. Interested members of the public submitted
several comments to the Interim Rule. The comments have been carefully
considered. Comments are described below, as are the approaches that
Treasury has taken in addressing them.
Commentators asked Treasury to eliminate the reference to
``management officials'' in 31 CFR 31.201 and 31 CFR 31.212. One
commentator took issue with what they felt was the presumption, by
defining management official, that such officials had knowledge related
to the Treasury arrangement by virtue of status, rather than by virtue
of having a substantive role in the arrangement. Treasury agrees, and
decided to limit various obligations previously required of management
officials to those key individuals who are personally and substantially
involved in providing services under an arrangement with Treasury.
Management officials performing a substantive role under an arrangement
will be subsumed in the definition of key individual, rendering the
definition of management official unnecessary.
Treasury received a comment that inquired whether Treasury
considered the examples listed in the definitional provisions in 31 CFR
31.201 to per se constitute organizational conflict of interests. The
illustrations set forth in the definitional provisions in section
31.201 are examples of situations that may give rise to a conflict of
interest. They are not pronouncements that a particular set of facts
will necessarily give rise to a conflict of interest, or that such
conflict of interest cannot be mitigated. Treasury also received a
comment suggesting the rule include specific mitigation plans for some
of the conflicts examples. Treasury believes that including specific
mitigation plans as part of the regulation would not be useful because
the facts and circumstances of each potential or actual conflict
determine whether a conflict of interest exists and dictate the
appropriate mitigation controls. Treasury notes that it routinely
interfaces directly with retained entities to formulate conflicts of
interest mitigation plans that are dependent on the particular facts
underlying the potential conflict.
Treasury also received comments questioning the relationship of the
rule to contractors versus financial agents. To clarify, this final
rule applies to both financial agency agreements and procurement
contracts. Of course, procurement contracts are also subject to the
Federal Acquisition Regulation (the ``FAR'') along with other
regulatory requirements. Treasury also notes that the TARP Chief
Compliance Officer lacks the direct or delegated authority to waive FAR
rules related to organizational conflicts of interests. Thus, a waiver
issued under 31 CFR part 31 does not itself ensure compliance with the
applicable FAR requirements.
Treasury notes that pursuant to section 31.200(b), vendors hired
under an arrangement to perform purely administrative services (e.g.,
parking services for Treasury) are not subject to this rule because, in
Treasury's estimation, the providers of such services are not likely to
exercise the discretion core to Treasury's mission under the Troubled
Asset Relief Program (``TARP'') which would likely create conflicts of
interest and, therefore, the burden of subjecting such vendors to the
rule is unnecessary.
Treasury added a specific reference to the appearance of a conflict
of interest to sections 31.200, 31.211 and 31.212 to clarify that facts
or situations that give rise to the appearance of a conflict of
interest are also considered potential conflicts. This clarification is
consistent with the overall approach of, and policy underlying, the
regulation.
One commentator advocated the adoption of a rule that a retained
entity which is an SEC-registered investment
[[Page 61047]]
adviser is per se deemed to have complied with the federal securities
laws mentioned in section 31.211(a) or that, in the alternative, the
rule should require that the compliance programs only be ``reasonably
designed'' to detect and prevent violations of federal securities laws
and organizational conflicts of interest. Treasury does not agree with
the first suggestion but agrees with the latter, and has revised
section 31.211(a) accordingly.
Treasury also received comments that the standards related to gifts
in section 31.213(a)(1) should be limited to individuals deployed for
Treasury and include reasonable scope limitations. In response,
Treasury agreed to limit application of section 31.213(a)(1) to
individuals performing work under the arrangement and added specific
dollar figures to the restriction on accepting or soliciting favors,
gifts, or other items of monetary value (above $20 per gift or $50 for
the year) to make it consistent with the standards used by the Office
of Government Ethics.
Treasury clarifies that it intends to follow the same standard for
``credible evidence'' in section 31.213 that is used in relation to FAR
Clause 52.203-13(b) (3).
One commentator believed that the definition of ``retained entity''
was overly broad, in that it included subcontractors and consultants
hired to perform services under the arrangement, and that the reference
to subcontractors and consultants should be removed or, in the
alternative, limited to those providing substantive services under the
arrangement. Treasury disagrees and notes that subcontractors and
vendors may possess conflicts of interest that could cause a reasonable
person with knowledge of the relevant facts to question the retained
entity's objectivity or judgment. As stated previously, pursuant to
section 31.200(b), administrative contracts are excluded from the rule,
thus avoiding application of the rule to entities unlikely to possess
organizational conflicts of interest.
A commentator also recommended that ``related entities'' be defined
more narrowly, to eliminate parents, subsidiaries, etc. which operate
independently from the retained entity. It was noted that some conflict
mitigation procedures, such as barriers to eliminate the sharing of
information, may also inhibit the discovery of conflicts of interest
involving related entities. Treasury understands the commentator's
concern, but believes revising the related entity definition is
unnecessary as the conflict mitigation measures listed in section
31.211(c) are provided for illustrative purposes only and can be
tailored as necessary in the actual mitigation plan agreed upon by the
retained entity and Treasury.
One comment maintained that the rule inappropriately places too
much of the burden of discovering conflicts of interest, both
organizational and personal, on the retained entity, and that the rule
should be amended to explicitly state the burden falls on both the
retained entity and the Treasury. Treasury does not agree. Although
Treasury takes independent steps to identify conflicts of interest and
determine appropriate mitigants, the rule focuses on the obligation of
the retained entity, pursuant to section 31.211(a), to identify
conflicts and formulate a conflicts of interest mitigation plan.
One commentator stated the rule should specify the level of
employee within the retained entity that must learn of an
organizational conflict of interest before a reporting obligation is
triggered. Treasury believes that such a limitation would be opposed to
its policy objectives that any employee of a retained entity who knows
of a conflict should be required to report it.
Treasury also received a comment in favor of a materiality
threshold in judging what constitutes an organizational conflict of
interest. Treasury was directed to look to applicable case law
concerning Rule 10b-5 of the Securities Exchange Act of 1934. Treasury
has not adopted a materiality threshold because Treasury should be
alerted to any possible conflict of interest, and post-notification
Treasury can decide whether a conflict is material. Additionally, the
adoption of a materiality threshold could invite abuse.
Treasury received a comment expressing the view that, since the
American Bar Association's (ABA) Rules of Professional Conduct already
contain conflicts of interest provisions, that Treasury should
disregard organizational conflicts of interest concerns when the
retained entity is a law firm that has complied with the standards set
forth in either these rules or applicable case law. Treasury does not
adopt this change because this regulation is specifically related to
the requirements of EESA and the ABA Rules of Professional Conduct may
not adequately address all conflicts of interest.
Treasury received comments suggesting that the continuing
obligation to search for any potential organizational and personal
conflicts of interest and to report new conflicts of interest within
five business days of learning of them is unreasonable and invites
failure. It was requested that Treasury adopt a more flexible standard,
and one commentator even recommended eliminating the notification
requirement altogether and relying only upon the periodic
certifications. Treasury believes such a five day timeframe is
appropriate and does not need to be revised or lengthened. Experience
has shown five days is not too short of a period as the retained entity
need only provide Treasury notification of the conflict and the initial
proposal for mitigating the conflict. In addition, it is important for
mitigation controls to be implemented without delay. Eliminating the
notification requirement and relying solely upon the periodic
certification may result in situations in which certain conflicts of
interest have not been mitigated adequately and, thus, Treasury's
ability to monitor such conflicts in a timely manner would be undercut.
One comment requested the clarification that the notification
requirement applies only to conflicts of interest not yet identified,
and not to new conflicts that can be addressed by a previously-approved
conflicts mitigation plan. The notification requirement applies to all
new conflicts.
The same comment questioned whether the five day timeframe begins
at the time the new conflicts arises, or when the retained entity's
TARP Compliance Officer is informed of the new conflict. For avoidance
of doubt, the five day timeframe begins when any person at the retained
entity becomes aware of the new conflict (not just the TARP Compliance
Officer).
Treasury also received comments to the effect that the section
31.212(b) concept of identifying and monitoring close personal
relationships was improperly subjective because the phrase ``close
personal relationship'' is open to broad interpretation. Treasury
agrees and revised the definition of a personal conflict of interest in
section 31.201 and the requirements of section 31.212(b) to include
``an individual, or any dependent child (meaning son, daughter, stepson
or stepdaughter who is either (a) Unmarried, under age 21, and living
in the individual's house, or (b) considered a ``dependent'' of the
individual under the U.S. tax code),'' In making this modification,
Treasury adopted the standards used in completing the Office of
Government Ethics (``OGE'') Form 450.
Treasury received many comments expressing the view that requiring
the use of OGE Form 278 as a disclosure standard in the personal
conflicts inquiry process (section 31.212(b))
[[Page 61048]]
presented an overly invasive, unwarranted burden, in that it took too
long to fill out the form and that the form asked intrusive questions
regarding personal activities. Treasury reviewed these comments in
light of its own experience, and also in light of having received an
official recommendation from the Government Accountability Office (GAO)
suggesting that Form 450 would be a more appropriate model on which
vendors should base their inquiries into the personal conflicts of
their employees than Form 278. The GAO believed that the using Form 450
as a model could appropriately reduce the burden of providing financial
information as opposed to the Form 278. See TROUBLED ASSET RELIEF
PROGRAM: March 2009 Status of Efforts to Address Transparency and
Accountability Issues, GAO March 2009 p. 45, available at http://www.gao.gov/new.items/d09504.pdf. On these bases, Treasury agrees that
Form 450 is more appropriate than Form 278 as a personal conflicts
inquiry model, and has substituted Form 450 for Form 278 in the rule.
Treasury received a comment asserting the rule did not provide
enough detail in regard to what would constitute a personal conflict of
interest, and what the related mitigation steps would be. Since the
Interim Rule has been released, Treasury has found that the definition
of ``personal conflicts of interest'' is sufficiently broad to
encompass the wide range of personal conflicts of interest that may
arise, but yet provides enough guidance for retained entities to
recognize which circumstances could constitute a personal conflict of
interest, and that the variables that would determine a sufficient
mitigation plan are such that providing specific examples would be of
limited value.
Some commentators expressed concern that the ten-business day
timeframe for submitting the personal conflicts of interest
certification is too little time for a sound submission, contending it
is unlikely a retained entity would be able to gather, process, and
certify the required information in that time. Treasury disagrees
because it has found in its experience in applying the Interim Rule
that ten business days is sufficient time to gather the information
required to submit the personal conflicts of interest certification,
particularly since the retained entity can begin at least part of the
process before the arrangement is signed. If a retained entity feels
ten business days may not be adequate (for example, if the retained
entity has a large number of key individuals), it may request an
extension.
Treasury also received a comment that the three-year document
retention requirement in sections 31.211(h) and 31.212(h) should be
shortened. Treasury believes the three-year document retention
requirement is necessary in case any question should surface regarding
a past determination or mitigation as to a particular personal conflict
of interest.
One commentator felt that section 31.213(c) should be revised so
that Treasury would no longer refer all violations of 18 U.S.C. 1001 to
the Department of Justice and to SIGTARP, but would instead refer only
those violations relating to services under EESA and related
certifications. Treasury sees no reason to limit which violations it
refers to the Department of Justice or to SIGTARP, as Treasury does not
wish for any false statements to go unreported.
Treasury received a comment that the phrase ``impermissible
conflicts of interest'' referred to in section 31.214 should be limited
so that it only relates to activities in connection with buying or
selling assets under the TARP program, and not to ``customary''
business activities such as managing client accounts that hold
securities or other financial instruments issued by TARP-funded
entities. Treasury was also urged to limit the prohibitions set forth
in section 31.214(a) and (b) to concurrent activities involving the
specific assets for which the retained entity has entered into an
arrangement with Treasury, and further, to adopt a de minimis exception
in order to permit a retained entity to engage in certain incidental
market activities involving TARP securities without such activities
rising to the level of an ``impermissible'' conflict of interest.
Treasury believes that because such activities can be addressed in the
retained entity's conflicts mitigation plan agreed upon by Treasury,
and because section 31.214 specifically states its restrictions do not
apply if ``Treasury agrees in writing to specific mitigation
measures,'' including these exceptions in the rule is unnecessary.
The same commentator argued that section 31.217(a)'s treatment of
all information provided by Treasury to a retained entity under an
arrangement as non-public until Treasury determines otherwise is
overbroad. It was recommended that the confidentiality requirement
apply only to information pertaining to a TARP beneficiary or its
assets, or that is otherwise marked by Treasury as proprietary or
confidential. Treasury understands the commentator's concern, but
believes the consequences of sensitive information becoming public are
such that maintaining a broad determination of confidentiality is
warranted and appropriately protective of confidential information.
Treasury also received comments recommending that only management
officials and key personnel be subject to a duty to report violations
of confidentiality obligations. As stated earlier, Treasury believes
that any employee of the retained entity should be required to report a
breach of confidentiality.
Treasury received one comment expressing the view that the
penalties contemplated by section 31.218(a) are overly broad and not
reasonably calculated to address the nature and severity of the
perceived transgression. Treasury believes that the appropriateness of
the sanction will depend heavily on the violation, such that leaving
the potential penalties listed in the rule broad is appropriate.
Treasury received a comment recommending that section 31.218(b) be
eliminated due to perceived uncertainty regarding Treasury's
expectations regarding the times and extent of the disclosure
requirements found in the rule. Treasury believes section 31.218(b)
encourages prompt disclosure of violations of the rule, and thus
rejects the recommendation.
The definition of ``key individual'' in section 31.201 has been
changed to clarify that the list of actions that may constitute
personal and substantial participation in a matter provides examples
and is not necessarily an exclusive list of such actions. This change
is made to more closely track the language of 5 CFR 2635.402(b)(4),
upon which the list is based. It should be stressed that while Sec.
2635.402(b)(4), which applies to Government employees, covers
participation in a Government matter, personal and substantial
participation in a decision or other matter under consideration by the
retained entity itself will satisfy the criteria for a key individual
under this part 31. For example, an employee of the retained entity who
provides advice to other employees of the retained entity concerning
performance of the arrangement qualifies as a key individual if the
other elements of the definition are satisfied.
For consistency, Treasury replaced the previous definition of
``troubled assets'' (in section 31.201) with a reference to the
definition given in EESA, 12 U.S.C. 5209(9).
[[Page 61049]]
III. Procedural Requirements
Regulatory Planning and Review
Executive Orders 13563 and 12866 direct agencies to assess costs
and benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). Executive Order 13563
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility.
This rule has been designated a ``significant regulatory action''
although not economically significant, under section 3(f) of Executive
Order 12866. Accordingly, the rule has been reviewed by the Office of
Management and Budget.
Regulatory Flexibility Act
Because no notice of proposed rulemaking is required, this rule is
not subject to the provisions of the Regulatory Flexibility Act (5
U.S.C. chapter 6).
Paperwork Reduction Act
The information collections contained in the rule have been
reviewed and approved by OMB under the Paperwork Reduction Act (44
U.S.C. chapter 35) and assigned OMB control number 1505-0209. Under the
Paperwork Reduction Act, an agency may not conduct or sponsor and a
person is not required to respond to, a collection of information
unless it displays a valid OMB control number.
List of Subjects in 31 CFR Part 31
Conflicts of interest, Contracts, Troubled assets.
For the reasons set out in the preamble, Title 31 of the Code of
Federal Regulations is amended as follows:
0
1. Revise part 31 to read as follows:
PART 31--TROUBLED ASSET RELIEF PROGRAM
Sec.
31.1 General.
Subpart A--[Reserved]
Subpart B--Conflicts of Interest
31.200 Purpose and scope.
31.201 Definitions.
31.211 Organizational conflicts of interest.
31.212 Personal conflicts of interest.
31.213 General standards.
31.214 Limitations on concurrent activities.
31.215 Grant of waivers.
31.216 Communications with Treasury employees.
31.217 Confidentiality of information.
31.218 Enforcement.
Authority: 31 U.S.C. 321; Pub. L. 110-343; 122 Stat. 3765.
Sec. 31.1 General.
This part sets forth regulations to implement and administer the
Emergency Economic Stabilization Act of 2008 (Pub. L. 110-343; 122
Stat. 3765).
Subpart A--[Reserved]
Subpart B--Conflicts of Interest
Sec. 31.200 Purpose and scope.
(a) Purpose. This regulation sets forth standards to address and
manage or to prohibit conflicts of interest that may arise in
connection with the administration and execution of the authorities
under the Troubled Asset Relief Program (TARP), established under
sections 101 and 102 of the Emergency Economic Stabilization Act of
2008 (EESA).
(b) Scope. This regulation addresses actual and potential conflicts
of interest, or circumstances that give rise to the appearance of a
conflict of interest, that may arise from contracts and financial
agency agreements between private sector entities and the Treasury for
services under the TARP, other than administrative services identified
by the TARP Chief Compliance Officer.
Sec. 31.201 Definitions.
As used in this part:
Arrangement means a contract or financial agency agreement between
a private sector entity and the Treasury for services under the TARP,
other than administrative services identified by the TARP Chief
Compliance Officer.
Dependent child means a son, daughter, stepson or stepdaughter who
is either (a) Unmarried, under age 21, and living in the individual's
house, or (b) considered a ``dependent'' of the individual under the
U.S. tax code.
EESA means the Emergency Economic Stabilization Act of 2008, as
amended.
Key individual means an individual providing services to a private
sector entity who participates personally and substantially, through,
for example, decision, approval, disapproval, recommendation, or the
rendering of advice, in the negotiation or performance of, or
monitoring for compliance under, the arrangement with the Treasury. For
purposes of the definition of key individual, the words ``personally
and substantially'' shall have the same meaning and interpretation as
such words have in 5 CFR 2635.402(b)(4).
Organizational conflict of interest means a situation in which the
retained entity has an interest or relationship that could cause a
reasonable person with knowledge of the relevant facts to question the
retained entity's objectivity or judgment to perform under the
arrangement, or its ability to represent the Treasury. Without limiting
the scope of this definition, organizational conflicts of interest may
include the following situations:
(1) A prior or current arrangement between the Treasury and the
retained entity that may give the retained entity an unfair competitive
advantage in obtaining a new arrangement with Treasury.
(2) The retained entity is, or represents, a party in litigation
against the Treasury relating to activities under the EESA.
(3) The retained entity provides services for Treasury relating to
the acquisition, valuation, disposition, or management of troubled
assets at the same time it provides those services for itself or
others.
(4) The retained entity gains, or stands to gain, an unfair
competitive advantage in private business arrangements or investments
by using information provided under an arrangement or obtained or
developed pursuant to an arrangement with Treasury.
(5) The retained entity is a potential candidate for relief under
EESA, is currently participating in an EESA program, or has a financial
interest that could be affected by its performance of the arrangement.
(6) The retained entity maintains a business or financial
relationship with institutions that have received funds from Treasury
pursuant to the EESA.
Personal conflict of interest means a personal, business, or
financial interest of an individual, his or her spouse or any dependent
child that could adversely affect the individual's ability to perform
under the arrangement, his or her objectivity or judgment in such
performance, or his or her ability to represent the interests of the
Treasury.
Related entity means the parent company and subsidiaries of a
retained entity, any entity holding a controlling interest in the
retained entity, and any entity in which the retained entity holds a
controlling interest.
Retained entity means the individual or entity seeking an
arrangement with the Treasury or having such an arrangement with the
Treasury, but does not include special government employees. A
``retained entity'' includes the subcontractors and consultants it
[[Page 61050]]
hires to perform services under the arrangement.
Special government employee means an officer or employee serving
the Treasury, serving with or without compensation, for a period not to
exceed 130 days during any 365-day period on a full-time or
intermittent basis.
Treasury means the United States Department of the Treasury.
Treasury employee means an officer or employee of the Treasury,
including a special government employee, or an employee of any other
government agency who is properly acting on behalf of the Treasury.
Troubled assets, for purposes of this rule, shall have the same
meaning as set forth in 12 U.S.C. 5202(9).
Sec. 31.211 Organizational conflicts of interest.
(a) Retained entity's responsibility. A retained entity working
under an arrangement shall not permit an actual or potential
organizational conflict of interest (including a situation in which the
retained entity has an interest or relationship that could cause a
reasonable person with knowledge of the relevant facts to question the
retained entity's objectivity or judgment to perform under the
arrangement or its ability to represent the Treasury), unless the
conflict has been disclosed to Treasury under this Section and
mitigated under a plan approved by Treasury, or Treasury has waived the
conflict. With respect to arrangements for the acquisition, valuation,
management, or disposition of troubled assets, the retained entity
shall maintain a compliance program reasonably designed to detect and
prevent violations of federal securities laws and organizational
conflicts of interest.
(b) Information required about the retained entity. As early as
possible before entering an arrangement to perform services for
Treasury under the EESA, a retained entity shall provide Treasury with
sufficient information to evaluate any organizational conflicts of
interest. The information shall include the following:
(1) The retained entity's relationship to any related entities.
(2) The categories of troubled assets owned or controlled by the
retained entity and its related entities, if the arrangement relates to
the acquisition, valuation, disposition, or management of troubled
assets.
(3) Information concerning all other business or financial
interests of the retained entity, its proposed subcontractors, or its
related entities, which could conflict with the retained entity's
obligations under the arrangement with Treasury.
(4) A description of all organizational conflicts of interest and
potential conflicts of interest.
(5) A written detailed plan to mitigate all organizational
conflicts of interest, along with supporting documents.
(6) Any other information or documentation about the retained
entity, its proposed subcontractors, or its related entities that
Treasury may request.
(c) Plans to mitigate organizational conflicts of interest. The
steps necessary to mitigate a conflict may depend on a variety of
factors, including the type of conflict, the scope of work under the
arrangement, and the organizational structure of the retained entity.
Some conflicts may be so substantial and pervasive that they cannot be
mitigated. Retained entities should consider the following measures
when designing a mitigation plan:
(1) Adopting, implementing, and enforcing appropriate information
barriers to prevent unauthorized people from learning nonpublic
information relating to the arrangement and isolate key individuals
from learning how their performance under the arrangement could affect
the financial interests of the retained entity, its clients, and
related entities.
(2) Divesting assets that give rise to conflicts of interest.
(3) Terminating or refraining from business relationships that give
rise to conflicts of interest.
(4) If consistent with the terms of the arrangement and permitted
by Treasury, refraining from performing specific types of work under
the arrangement.
(5) Any other steps appropriate under the circumstances.
(d) Certification required. When the retained entity provides the
information required by paragraph (b) of this section, the retained
entity shall certify that the information is complete and accurate in
all material respects.
(e) Determination required. Prior to entering into any arrangement,
the Treasury must conclude that no organizational conflict of interest
exists that has not been adequately mitigated, or if a conflict cannot
be adequately mitigated, that Treasury has expressly waived it. Once
Treasury has approved a conflicts mitigation plan, the plan becomes an
enforceable term under the arrangement.
(f) Subsequent notification. The retained entity has a continuing
obligation to search for, report, and mitigate any and all potential
organizational conflicts of interest that have not already been
disclosed to Treasury under a plan approved by Treasury or previously
waived by Treasury. The retained entity shall search regularly for
conflicts and shall, within five (5) business days after learning of a
potential organizational conflict of interest, disclose the potential
conflict of interest in writing to the TARP Chief Compliance Officer.
The disclosure shall describe the steps it has taken or proposes to
take to mitigate the potential conflict or request a waiver from
Treasury.
(g) Periodic Certification. No later than one year after the
arrangement's effective date, and at least annually thereafter, the
retained entity shall certify in writing that it has no organizational
conflicts of interest, or explain in detail the extent to which it can
certify, and describe the actions it has taken and plans to take to
mitigate any conflicts. Treasury may require more frequent
certifications, depending on the arrangement.
(h) Retention of information. A retained entity shall retain the
information needed to comply with this section and to support the
certifications required by this section for three (3) years following
termination or expiration of the arrangement, and shall make that
information available to Treasury upon request. Such retained
information shall include, but is not limited to, written documentation
regarding the factors the retained entity considered in its mitigation
plan as well as written documentation addressing the results of the
retained entities' periodic review of the mitigation plan.
Sec. 31.212 Personal conflicts of interest.
(a) Retained entity's responsibility. A retained entity shall
ensure that all key individuals have no personal conflicts of interest
(including a situation that would cause a reasonable person with
knowledge of the relevant facts to question the individual's ability to
perform, his or her objectivity or judgment in such performance, or his
or her ability to represent the interests of the Treasury), unless
mitigation measures have neutralized the conflict, or Treasury has
waived the conflict.
(b) Information required. Before key individuals begin work under
an arrangement, a retained entity shall obtain information from each of
them in writing about their personal, business, and financial
relationships, as well as those of their spouses and dependent children
that would cause a reasonable person with knowledge of the relevant
facts to question the individual's ability to perform, his or her
objectivity or judgment in such performance, or his or her ability to
represent the interests of
[[Page 61051]]
the Treasury. When the arrangement concerns the acquisition, valuation,
management, or disposition of troubled assets, the information shall be
no less extensive than that required of certain new federal employees
under Office of Government Ethics Form 450. Treasury may extend the
time necessary to meet these requirements in urgent and compelling
circumstances.
(c) Disqualification. The retained entity shall disqualify key
individuals with personal conflicts of interest from performing work
pursuant to the arrangement unless mitigation measures have neutralized
the conflict to the satisfaction of the TARP Chief Compliance Officer.
The retained entity may seek a waiver from the TARP Chief Compliance
Officer to allow a key individual with a personal conflict of interest
to work under the arrangement.
(d) Initial certification. No later than ten business days after
the effective date of the arrangement, the retained entity shall
certify to the Treasury that all key individuals performing services
under the arrangement have no personal conflicts of interest, or are
subject to a mitigation plan or waiver approved by Treasury. In making
this certification, the retained entity may rely on the information
obtained pursuant to paragraph (b) of this section, unless the retained
entity knows or should have known that the information provided is
false or inaccurate. Treasury may extend the time necessary to meet
these requirements where the retained entity has a large number of key
individuals, or in other appropriate circumstances.
(e) Periodic certification. No later than one year after the
arrangement's effective date, and at least annually thereafter, the
retained entity shall renew the certification required by paragraph (d)
of this section. The retained entity shall provide more frequent
certifications to Treasury when requested.
(f) Retained entities' responsibilities. The retained entity shall
adopt and implement procedures designed to search for, report, and
mitigate personal conflicts of interest on a continuous basis.
(g) Subsequent notification. Within five business days after
learning of a personal conflict of interest, the retained entity shall
notify Treasury of the conflict and describe the steps it has taken and
will take in the future to neutralize the conflict.
(h) Retention of information. A retained entity shall retain the
information needed to comply with this section and to support the
certifications required by this section for three years following
termination or expiration of the arrangement, and shall make that
information available to Treasury upon request.
Sec. 31.213 General standards.
(a) During the time period in which a retained entity is seeking an
arrangement and during the term of any arrangement:
(1) The retained entity's officers, partners, or employees
performing work under the arrangement shall not accept or solicit
favors, gifts, or other items of monetary value above $20 from any
individual or entity whom the retained entity, officer, partner, or
employee knows is seeking official action from the Treasury in
connection with the arrangement or has interests which may be
substantially affected by the performance or nonperformance of duties
to the Treasury under the arrangement, provided that the total value of
gifts from the same person or entity does not exceed $50 in any
calendar year.
(2) The retained entity and its officers and partners, and its
employees shall not improperly use or allow the improper use of
Treasury property for the personal benefit of any individual or entity
other than the Treasury.
(3) The retained entity and its officers and partners, and its
employees shall not make any unauthorized promise or commitment on
behalf of the Treasury.
(b) Any individual who acts for or on behalf of the Treasury
pursuant to an arrangement shall comply with 18 U.S.C. 201, which
generally prohibits the direct or indirect acceptance by a public
official of anything of value in return for being influenced in, or
because of, an official act. Violators are subject to criminal
penalties.
(c) Any individual or entity that provides information or makes a
certification to the Treasury that is relating to services under EESA
or required pursuant to 31 CFR Part 31 is subject to 18 U.S.C. 1001,
which generally prohibits the making of any false or fraudulent
statement to a federal officer. Upon receipt of information indicating
that any individual or entity has violated any provision of title 18 of
the U.S. Code or other provision of criminal law, Treasury shall refer
such information to the Department of Justice and the Special Inspector
General for the Troubled Asset Relief Program (SIGTARP).
(d) A retained entity shall disclose to the SIGTARP, any credible
evidence, in connection with the designation, services, or closeout of
the arrangement, that an employee, or contractor of the retained entity
has committed a violation of Federal criminal law involving fraud,
conflict of interest, bribery, or gratuity violations found in Title 18
of the United States Code, or a violation of the civil False Claims Act
(31 U.S.C. 3729-3733).
Sec. 31.214 Limitations on concurrent activities.
Treasury has determined that certain market activities by a
retained entity during the arrangement are likely to cause
impermissible conflicts of interest. Accordingly, the following
restrictions shall apply unless waived pursuant to section 31.215, or
Treasury agrees in writing to specific mitigation measures.
(a) If the retained entity assists Treasury in the acquisition,
valuation, management, or disposition of specific troubled assets, the
retained entity and key individuals shall not purchase or offer to
purchase such assets from Treasury, or assist anyone else in purchasing
or offering to purchase such troubled assets from the Treasury, during
the term of its arrangement.
(b) If the retained entity advises Treasury with respect to a
program for the purchase of troubled assets, the retained entity and
key individuals shall not, during the term of the arrangement, sell or
offer to sell, or act on behalf of anyone with respect to a sale or
offer to sell, any asset to Treasury under the terms of that program.
Sec. 31.215 Grant of waivers.
The TARP Chief Compliance Officer may waive a requirement under
this Part that is not otherwise imposed by law when it is clear from
the totality of the circumstances that a waiver is in the government's
interest.
Sec. 31.216 Communications with Treasury employees.
(a) Prohibitions. During the course of any process for selecting a
retained entity (including any process using non-competitive
procedures), a retained entity participating in the process and its
representatives shall not:
(1) Directly or indirectly make any offer or promise of future
employment or business opportunity to, or engage directly or indirectly
in any discussion of future employment or business opportunity with,
any Treasury employee with personal or direct responsibility for that
procurement.
(2) Offer, give, or promise to offer or give, directly or
indirectly, any money, gratuity, or other thing of value to any
Treasury employee, except as permitted by the Standards of Conduct for
Employees of the Executive Branch, 5 CFR part 2635.
(3) Solicit or obtain from any Treasury employee, directly or
indirectly, any
[[Page 61052]]
information that is not public and was prepared for use by Treasury for
the purpose of evaluating an offer, quotation, or response to enter
into an arrangement.
(b) Certification. Before a retained entity enters a new
arrangement, the retained entity must certify to the following:
(1) The retained entity is aware of the prohibitions of paragraph
(a) of this section and, to the best of its knowledge after making
reasonable inquiry, the retained entity has no information concerning a
violation or possible violation of paragraph (a) of this section.
(2) Each officer, employee, and representative of the retained
entity who participated personally and substantially in preparing and
submitting a bid, offer, proposal, or request for modification of the
arrangement has certified that he or she:
(i) Is familiar with and will comply with the requirements of
paragraph (a) of this section; and
(ii) Has no information of any violations or possible violations of
paragraph (a) of this section, and will report immediately to the
retained entity any subsequently gained information concerning a
violation or possible violation of paragraph (a) of this section.
Sec. 31.217 Confidentiality of information.
(a) Nonpublic information defined. Any information that Treasury
provides to a retained entity under an arrangement, or that the
retained entity obtains or develops pursuant to the arrangement, shall
be deemed nonpublic until the Treasury determines otherwise in writing,
or the information becomes part of the body of public information from
a source other than the retained entity.
(b) Prohibitions. The retained entity shall not:
(1) Disclose nonpublic information to anyone except as required to
perform the retained entity's obligations pursuant to the arrangement,
or pursuant to a lawful court order or valid subpoena after giving
prior notice to Treasury.
(2) Use or allow the use of any nonpublic information to further
any private interest other than as contemplated by the arrangement.
(c) Retained entity's responsibility. A retained entity shall take
appropriate measures to ensure the confidentiality of nonpublic
information and to prevent its inappropriate use. The retained entity
shall document these measures in sufficient detail to demonstrate
compliance, and shall maintain this documentation for three years after
the arrangement has terminated. The retained entity shall notify the
TARP Chief Compliance Officer in writing within five business days of
detecting a violation of the prohibitions in paragraph (b), above. The
security measures required by this paragraph shall include:
(1) Security measures to prevent unauthorized access to facilities
and storage containers where nonpublic information is stored.
(2) Security measures to detect and prevent unauthorized access to
computer equipment and data storage devices that store or transmit
nonpublic information.
(3) Periodic training to ensure that persons receiving nonpublic
information know their obligation to maintain its confidentiality and
to use it only for purposes contemplated by the arrangement.
(4) Programs to ensure compliance with federal securities laws,
including laws relating to insider trading, when the arrangement
relates to the acquisition, valuation, management, or disposition of
troubled assets.
(5) A certification from each key individual stating that he or she
will comply with the requirements in section 31.217(b). The retained
entity shall obtain this certification, in the form of a nondisclosure
agreement, before a key individual performs work under the arrangement,
and then annually thereafter.
(d) Certification. No later than ten business days after the
effective date of the arrangement, the retained entity shall certify to
the Treasury that it has received a certification form from each key
individual stating that he or she will comply with the requirements in
Sec. 31.217(b). In making this certification, the retained entity may
rely on the information obtained pursuant to paragraph (b) of this
section, unless the retained entity knows or should have known that the
information provided is false or inaccurate.
Sec. 31.218 Enforcement.
(a) Compliance with these rules concerning conflicts of interest is
of the utmost importance. In the event a retained entity or any
individual or entity providing information pursuant to 31 U.S.C. part
31 violates any of these rules, Treasury may impose or pursue one or
more of the following sanctions:
(1) Rejection of work tainted by an organizational conflict of
interest or a personal conflict of interest and denial of payment for
that work.
(2) Termination of the arrangement for default.
(3) Debarment of the retained entity for Federal government
contracting and/or disqualification of the retained entity from future
financial agency agreements.
(4) Imposition of any other remedy available under the terms of the
arrangement or at law.
(5) In the event of violation of a criminal statue, referral to the
Department of Justice for prosecution of the retained entity and/or its
officers or employees. In such cases, the Department of Justice may
make direct and derivative use of any statements and information
provided by any entity, its representatives and employees or any
individual, to the extent permitted by law.
(b) To the extent Treasury has discretion in selecting or imposing
a remedy, it will give significant consideration to a retained entity's
prompt disclosure of any violation of these rules.
Dated: September 19, 2011.
Timothy G. Massad,
Assistant Secretary for Financial Stability.
[FR Doc. 2011-25443 Filed 9-30-11; 8:45 am]
BILLING CODE 4810-25-P