[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-4536] [[Page Unknown]] [Federal Register: March 1, 1994] ======================================================================= ----------------------------------------------------------------------- FARM CREDIT ADMINISTRATION 12 CFR Part 650 RIN 3052-AB49 Federal Agricultural Mortgage Corporation; Conflicts of Interest AGENCY: Farm Credit Administration. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit Administration Board, adopts a new regulation relating to reporting and disclosure of conflicts of interest by directors, officers, and employees of the Federal Agricultural Mortgage Corporation (Corporation). The regulation is adopted in response to section 514 of the Farm Credit Banks and Associations Safety and Soundness Act of 1992. Section 514 directs the FCA to ensure that its regulations require the disclosure of financial information and the reporting of potential conflicts of interest by directors, officers, and employees of all Farm Credit System (System) institutions and that such requirements are adequate to fulfill the purposes of the section. The regulation requires the Corporation to adopt a conflict-of- interest policy that defines the types of relationships, transactions, or activities that might reasonably be expected to give rise to a potential conflict of interest. The regulation also requires the reporting of sufficient information about financial interests, transactions, relationships, and activities to inform the Corporation about potential conflicts of interest. The regulation further requires disclosure to shareholders, investors, and potential investors of any unresolved conflicts of interest involving its directors, officers, and employees identified by the Corporation under the policy. Such disclosure is in addition to disclosures already required under the Federal securities laws. EFFECTIVE DATE: The regulation shall become effective 180 days after publication in the Federal Register or on such later date as may be necessary to comply with the statutory requirement for a delayed effective date of 30 days after Federal Register publication during which either or both Houses of Congress are in session. Notice of the effective date will be published in the Federal Register. FOR FURTHER INFORMATION CONTACT: Suzanne J. McCrory, Director, Office of Secondary Market Oversight, Farm Credit Administration, McLean, VA 22102-5090 (703) 883-4280, TDD (703) 883-4444. SUPPLEMENTARY INFORMATION: On October 14, 1993, the FCA published for comment conflict-of-interest regulations (58 FR 53161) for the Corporation. The regulations were proposed in response to section 514 of the Farm Credit Banks and Associations Safety and Soundness Act of 1992, Pub. L. 102-552, 106 Stat. 4102 (1992 Act). The 1992 Act directed the FCA to review its current regulations regarding the disclosure of financial information and the reporting of potential conflicts of interest by the directors, officers, and employees of System institutions to determine whether the regulations: (1) Are adequate to fulfill the purpose of section 514 and other purposes determined by the FCA to be necessary or appropriate, consistent with the Farm Credit Act of 1971, as amended (1971 Act); (2) require the disclosure of financial information and reporting of potential conflicts of interest by the directors, officers, and employees of all System institutions; and (3) require such disclosure of all of the appropriate directors, officers, or employees of System institutions. The 1992 Act further directed the FCA to amend its current financial disclosure and conflict-of-interest regulations to carry out the purpose of section 514, which is to ensure that FCA regulations require the disclosure of financial information and the reporting of potential conflicts of interest to provide sufficient information for: (1) Stockholders to make informed decisions regarding the operation of the institutions; (2) investors and potential investors to make informed investment decisions; and (3) the FCA to examine and regulate all System institutions effectively and efficiently. The comment period closed on November 15, 1993. Comments were received from the Corporation and from The Farm Credit Council (FCC), a trade association for the banks and associations of the System. The Farm Credit Bank of Baltimore submitted a letter endorsing the comments of the FCC. The Corporation supported the regulatory approach to conflicts of interest, but made a number of substantive and clarifying comments. Most notably, the Corporation asserted that the definition of ``employee'' is broader than necessary to effectuate the stated purpose of the 1992 Act and will result in irrelevant or immaterial reporting by receptionists, secretaries, bookkeepers, clerks, and other employees without regard to their functions or duties at the Corporation. The Corporation noted that its existing policies also define ``employee'' broadly, but reporting requirements are tailored to screen out reporting by employees who are not in a position to influence activity with respect to their financial interests. The Corporation suggested that the term ``employee'' be replaced with the term ``key employee,'' defined to mean ``any salaried manager or supervisor or part-time, full-time, or temporary salaried employee who is involved in any significant activity related to the processing, analysis, or guarantee of loan pools or other significant financial activity or who is engaged in any policy-making, managerial, supervisory, or professional function for the Corporation.'' This definition would apply only to employees other than officers and directors, who are already specifically referenced in the regulation. The FCA is opposed to removing groups of employees from the regulation's applicability. Although the proposed regulation broadly defines potential conflicts of interest to apply to all employees, it requires the Corporation to define the types of specific transactions, relationships, and activities that reasonably could be expected to give rise to potential conflicts of interest and to require reporting of sufficient information to inform the Corporation of these potential conflicts of interest. The FCA believes that the regulation gives the Corporation sufficient latitude to tailor its reporting requirements based upon the function various employees perform for the Corporation. The FCA believes that each employee, no matter what his or her function, should be subject to a requirement to report any matter that might adversely affect impartiality in the performance of his or her duties. Accordingly, the FCA declines to replace the term ``employee'' with the term ``key employee'' in the definition of ``potential conflict of interest.'' However, because officers are separately defined, the FCA has amended the definition of ``employee'' to exclude officers. The Corporation and the FCC requested that the language of the regulation be amended to clarify that only material conflicts need to be resolved to avoid disclosure. The FCA confirms that this is the intended result and adopts minor language changes to the definition of ``resolved'' and to Sec. 650.3 to make this point clearer. The Corporation requested that the regulation be modified to provide a defined period of time for the development of the conflict- of-interest policy by the Corporation and suggested that a reasonable time period would be 180 days from the effective date of the final rule, noting that developing such a policy will involve issues that must be decided by the Corporation's Board (Board). The FCA recognizes that the policy required by the regulation may be different from the Corporation's existing policy and that Board participation in its development is required. Indeed, in requiring the Corporation to adopt a conflict-of-interest policy, the FCA contemplated that the Corporation must act through its board of directors. The FCA views the request as a reasonable one, but believes that 180 days from the date of publication of the final rule should be a sufficient period to develop a policy. Consequently, the FCA has adopted a delayed effective date of 180 days after publication in the Federal Register or such later date as may be necessary to comply with the statutory requirement for a delayed effective date of 30 days during which either or both Houses of Congress are in session. In the interim, the FCA expects that employees of the Corporation and its subsidiaries will adhere to high standards of honesty, integrity, impartiality, loyalty, and care consistent with applicable law and regulation in furtherance of the Corporation's public purpose. The FCA further expects that the Corporation will be vigilant in monitoring and resolving potential conflicts of interest under its existing policy. The Corporation also suggested adding a requirement to establish procedures for resolving material conflicts of interest and for maintaining adequate records of non-material conflicts of interest and resolutions of material conflicts of interest. The FCA believes that these requirements are fairly implied from the requirement to disclose unresolved conflicts of interest and the requirement to retain, for a period of 6 years, reports and statements on potential conflicts of interests and documentation of materiality determinations and resolutions of conflict of interests. However, an express requirement to develop procedures for resolving material conflicts of interest has been added as paragraph (e) of Sec. 650.2 of the final regulation and succeeding paragraphs have been renumbered. The FCC expressed general agreement with the rationale underlying the FCA's decision to treat the Corporation differently from System banks and associations, but expressed reservations about the extent of delegation granted to the Corporation to define its own conflict-of- interest policy, especially with regard to standards that may be established for members of the Board. In particular, the FCC asserted that the emphasis in the preamble on the fiduciary duties of directors to all of the shareholders ignores the representative character of the board of directors.\1\ Although the FCC agrees that traditional concepts of fiduciary responsibility apply, it asserts that System and non-System directors are under no obligation to disregard the interests of the shareholders who elected them, and that to prohibit participation by System directors or non-System directors in board deliberations and voting on matters potentially affecting the interests of System institutions or non-System institutions would be contrary to congressional intention. --------------------------------------------------------------------------- \1\The Corporation's Board is composed of 15 directors--5 elected by class A shareholders (non-System financial institutions such as commercial banks and insurance companies), 5 elected by class B shareholders (System institutions), and 5 appointed by the President. --------------------------------------------------------------------------- In addition, the FCC asserted that it would be inappropriate for the Corporation to adopt a policy that prohibits directors from discussing matters deemed confidential by Corporation management with anyone other than Board members and employees of the Corporation, as it would impede directors in the exercise of their independent business judgment if they were unable to disclose information to their own advisors. The FCC noted that ``legitimately confidential'' information would, of course, be disclosed to advisors on a confidential basis. In addition, the FCC asserted that System directors must be free to discuss information with a reasonable number of other individuals who represent System institutions, subject to strict guarantees of confidentiality. The principles of statutory construction require that all of a statute's provisions be interpreted together. As the FCC has noted, the representative character of the Corporation's Board must be reconciled with its corporate structure and associated principles of corporate governance. In the FCA's opinion, such a reconciliation can be achieved by: (1) Interpreting ``representative'' to be a qualification for office; and (2) recognizing that directors owe fiduciary duties to the Corporation and all its shareholders (rather than to the electing class of shareholders exclusively or primarily). The FCA's interpretation of ``representative'' does not require elected directors to disregard the perspectives of the electing class. Rather, directors should share these perspectives with the Board at large so that each director can act in the best interests of the Corporation and all of its shareholders. The FCA believes that the statutory term ``representative'' means that elected directors must have an official affiliation with a class A or class B institution in order to serve as a Corporation director. The FCA views an official affiliation as a substantial and visible connection such as serving as director, officer, or employee of a class A or class B institution. This interpretation of ``representative'' stems in part from the vacancy and continuation of membership provisions of sections 8.2(a)(4) and 8.2(b)(5)of the 1971 Act. Vacancy of an elected Board seat is filled by the permanent Board ``from among persons eligible for election to the position for which the vacancy exists,'' suggesting that some objective eligibility criterion exists other than being elected by the shareholder class. The continuation provision has the effect of terminating the term of a director when he or she ceases to be ``a representative.'' By contrast, were ``representative'' interpreted broadly to mean anyone who is selected by the institutions to act as a delegate, everybody would be eligible for election when a vacancy occurred and the automatic termination provisions would not work. Taken together, these provisions suggest that elected directors must have an official affiliation that is visible and substantial so that the presence and termination of this affiliation can be readily ascertained. Although the Board is representative in nature, Congress chose a corporate structure to govern the operations of the Corporation. Common law corporate principles affirm the fiduciary duty of directors to act in the best interests of the Corporation and all of its shareholders. The FCA believes that the representative character of the Board does nothing to alter this fiduciary duty of directors.\2\ That is, irrespective of the manner of appointment or election, each director has a duty to act in the best interests of the Corporation and all of its shareholders. The legislative history supports this interpretation by indicating, ``There is to be no distinction between the three categories of directors in terms of their duties and responsibilities as directors to the Mortgage Corporation and all stockholders.''\3\ --------------------------------------------------------------------------- \2\Some public companies have boards with representative features analogous though not identical to the Corporation's. For example, public companies may have seats designated to be elected by minority shareholders or seats designated to be filled by a union representative. However, the fiduciary responsibilities of directors are unchanged by the representational aspects of these boards, according to an official from the Securities and Exchange Commission with whom the FCA consulted. Each director owes fiduciary duties to the Corporation and its shareholders collectively. \3\Senate Report 100-230, p. 52 (November 20, 1987). --------------------------------------------------------------------------- When ``representative'' is interpreted as a qualification that directors must satisfy to be elected, directors can discharge their fiduciary duties in the context of a representative Board. Although directors may attain Board seats through different processes, each needs the same opportunity to understand the perspectives of different shareholders and secondary market participants on an issue to properly discharge his or her fiduciary duties to the Corporation. With an official affiliation, elected directors are authoritatively able to bring the perspectives of the class to the Board's deliberations. When the elected directors convey such perspectives to the Board at large, each director gets the information needed to discharge his or her fiduciary duties to the Corporation and all of its shareholders. The FCA believes that ``representative'' should not be interpreted to mean a delegate elected solely to further the viewpoints of the electing class without regard to the impact on the Corporation and all its shareholders. Such an interpretation implies that directors need not consider the interests of any class of Corporation shareholders lacking authority to elect them--a result inconsistent with corporate common law principles of a director's fiduciary duties and congressional intent. Specifically, the FCA responds to the FCC's comment by noting that the use of information gained in private consultations with class members about Corporation matters to inform only a director's personal judgments but not the Board deliberations would systematically prevent class A directors from learning the views of class B institutions and class B directors from learning the views of class A institutions. The ``public directors'' would have neither perspective. This withholding of information would likely lead to factional voting patterns because no director would be able to understand and weigh the many and different views of all shareholders. Because each director is obliged to act in the best interests of the Corporation and all of its shareholders, the FCA believes that withholding from Board deliberations useful perspectives and pertinent information gained from private consultations could undermine the ability of directors to carry out their fiduciary duties. In light of its interpretation of the ``representative'' nature of the Corporation's Board, the FCA makes the following determinations about three amendments requested by the FCC related to the representative character of the Board. First, the FCC requested that the definition of ``potential conflict of interest'' be modified to recognize that it is not a conflict of interest for Corporation directors to consider or act on matters that affect the financial interests of the class of shareholders that elected them if the matter is one of general applicability that affects all the shareholders in that class and does not have its effect exclusively or disproportionately on the particular shareholder with which that director is affiliated. The FCA agrees that ``potential conflict of interest'' should not be so broadly defined as to make it impermissible for any of the 10 elected directors to participate in matters affecting the financial interests of the class or the institution with which he or she is affiliated. To regard participation by an elected director in such matters as impermissible would render the Board nonfunctional since such decisions are unavoidable and large blocs of directors would be disenfranchised on certain general questions being deliberated by the Board. However, the FCA believes that no change is needed to respond to the FCC's concerns because the regulation does not disqualify directors from participating in deliberations affecting the electing class of institutions. The FCA believes that matters affecting class institutions as secondary market participants would not likely constitute potential conflicts of interests. Therefore, the regulatory definition of ``potential conflict of interest'' does not impute the interests of the class to the directors elected from that class. However, FCA notes that any Board action having differential effects on the class as shareholders may constitute a breach of fiduciary duties by directors. A director must act in the best interest of the Corporation and all of its shareholders. Second, the FCC requested that the regulation be modified to provide that Corporation directors may discuss with representatives of the shareholder class that elected them the implications of a proposed action that has general applicability and that such activity not be considered a conflict of interest. The regulation neither permits nor prohibits consultations by Corporation directors with outside parties. The appropriateness of such consultations depends on the facts and circumstances at hand. FCA declines to create a safe harbor for director consultations in order to avoid sanctioning consultations that might be inconsistent with a director's fiduciary duties. While the FCA agrees with the FCC that directors have a duty to exercise informed independent judgment on Corporation matters, and may from time to time need to consult knowledgeable advisors, the FCA also recognizes the right of the Corporation's Board to maintain the confidentiality of the Corporation's business matters. Consequently, the consultation of advisors in order to make an independent judgment must be undertaken with due regard for the Corporation's interest in maintaining confidentiality. Any advisors consulted by a director on a confidential matter would be bound by the Board's confidentiality constraints and could, by virtue of the consultation, become insiders of the Corporation subject to the prohibitions of the Securities Exchange Act of 1934 and rules thereunder. The director should make every effort to ensure that the confidentiality of consultations can and will be maintained. Fiduciary duty to the Corporation requires the director to share with the Board any material information in his or her possession that is germane to Board decisions, regardless of its source. Third, the FCC requested that the regulation be modified to recognize that the Corporation's directors are free to vigorously advance the interest of the institutions they represent, provided they make clear that they are not acting in their capacity as Corporation directors. The FCA declines to modify its regulation as requested because it believes that such a modification might sanction actions inconsistent with a director's fiduciary duties. As the FCC's comment letter noted, inherent within the organizational framework of the Corporation's Board is the potential for perceived conflicts of interest. Elected directors typically have simultaneous responsibilities to the Corporation and to a competing class A or B institution. The FCA agrees with the FCC's comment that such directors are not agents of the Corporation in all their doings and may also owe fiduciary duties to other institutions. However, the FCA believes a Corporation director who advances the interests of another institution must be mindful of his or her fiduciary duties to the Corporation and its shareholders, including System and non-System shareholders. Where directors have fiduciary duties to competing institutions, they must balance these duties to avoid harming either institution. To advance the interests of one corporation to which a director owes duties in a manner that injures another corporation to which he also owes fiduciary duties could heighten shareholder concern about the good faith and fair dealing of the director. The difficulty of balancing fiduciary duties to competing institutions has previously led the FCA to prohibit directors of Farm Credit banks and associations from serving as directors of competing institutions. While the FCA cannot prohibit such dual responsibilities, it is reluctant to sanction by regulation those actions by directors to advance the interests of one institution that are potentially at the expense of the Corporation's interests. As in the previous matter, the FCA believes that the appropriateness of a director's action must be evaluated in light of the specific circumstances. In some cases, action might be considered improper; in others it might not. As a result, the FCA declines to exclude from the definition of ``potential conflict of interest'' those actions by the Corporation's directors to ``advance vigorously the interests'' of a competing institution. The effect of declining to make such a change will be to continue to subject such actions to scrutiny as potential conflicts of interest. In addition to its general comments, the FCC made a number of specific suggestions regarding particular sections of the regulation. The FCC suggested that the definition of ``potential conflict of interest'' be changed to parallel the definition of ``conflict of interest'' in the regulations proposed for System banks and associations. Specifically, the FCC recommended changing ``might adversely affect or appear to adversely affect'' to ``actually affects or appears to affect.'' The change proposed by the FCC would narrow the reportable conflicts to those that an individual believes would affect or would appear to affect the individual's impartiality. The FCA believes that it would be inappropriate to adopt the FCC's suggestion in light of the fact that the approach taken for Farm Credit banks and associations differs from the regulatory approach for the Corporation. Specifically, the FCA has prohibited certain activities for employees and directors of Farm Credit banks and associations. Because most conflicts are banned in the regulation, a narrower definition of reportable conflicts of interest seems appropriate. By contrast, Corporation directors, officers, and employees are not subject to similar regulatory prohibitions. In the absence of specific prohibitions, the FCA believes it important to have reporting requirements that establish the broadest possible net so that the actual existence of a conflict is determined by the Corporation rather than the reporting individual. The regulation allows the Corporation to review all potential conflicts of interest for materiality before determining that an actual conflict must be resolved or disclosed. Because the FCA believes the different regulatory approaches warrant different reporting requirements, the FCA declines to make the change requested by the FCC. The FCC asserted that the regulation should be extended to agents in a manner similar to that currently in effect for agents of System banks and associations, especially since many of the various aspects of the Corporation's business are accomplished through agents, and recommended a definition similar to that used for banks and associations. Although responding to the direction of the 1992 Act does not require that the regulation address conflicts of interest of agents, the FCA considered this suggestion in light of how the Corporation's business activities are structured. Since the statute permits the activities of the Corporation to be carried out through affiliates chartered under state law, the FCA concluded that the intention of section 514 could be subverted were the requirements of the regulation not applied to such affiliates. Accordingly, the final regulation clarifies that the Corporation policy required by the regulation must also apply to officers, directors, and employees of any affiliates the Corporation establishes to carry out its function. The clarification is accomplished by expanding the definition of ``Corporation'' to include affiliates established under section 8.3(b)(13) of the 1971 Act. Similarly, with respect to agents that are not affiliates, the final regulation would require the Corporation's policy to address potential conflicts of interest by agents. The FCA recognizes that the Corporation has less control over agents that are not affiliates. The FCA believes the regulation is sufficiently flexible to permit the Corporation to make reasonable distinctions. Definitions of ``agent'' and ``affiliate'' have been added in the final regulation. The FCC suggested that the same basic due process and other protections set forth in the recently proposed System bank and association regulation be incorporated in the final regulation for the Corporation. The FCC deems this especially important in view of the fact that the penalties of part C of title V of the 1971 Act are available to enforce the policy. Specifically, the FCC suggested adding the following: (1) A requirement that all directors and employees be informed of the regulatory and policy requirements; (2) A requirement that the policy establish various criteria for business relationships and transactions to provide guidance to directors and employees; (3) A requirement that there be a reasonable time during which directors and employees may terminate prohibited transactions; (4) A requirement for recusal procedures; (5) A requirement for a standards-of-conduct officer and documentation of his or her actions; and (6) A requirement for appeal procedures. The FCA has considered each of these suggestions in light of the different approaches taken in the proposed regulations for the Corporation and for System banks and associations. Because of the different approach, the FCA believes that the specific requirements outlined in the proposed bank and association regulation are appropriate in some cases but not others. Specifically: (1) The FCA agrees that all directors and employees should be informed of the conflict-of-interest requirements and has added Sec. 650.2(g) to accomplish this. (2) Because Sec. 650.2(a) already requires the Corporation to define the types of activities, transactions, and relationships that could give rise to potential conflicts of interests, criteria for permissible business relationships and transactions will be established, at least by exclusion. Consequently, the FCA finds changing the regulation unnecessary. (3) The FCA agrees with the FCC that directors, officers, and employees should have an opportunity to bring themselves into compliance when the policy changes and has added language to that effect in Sec. 650.2(g). (4) In response to a Corporation comment, the FCA added a requirement that the Corporation's policy establish procedures for resolving and disclosing material conflicts of interest. The FCA has not specifically included a requirement that recusal procedures be established because recusal is just one way in which a conflict of interest can be resolved. (5) The FCA finds it unnecessary to require a standards-of-conduct officer, although the Corporation is free to appoint one, and believes that documentation requirements are already fairly implied from the recordkeeping requirement. (6) The Corporation may opt to establish appeals procedures as part of its resolution methods. However, the FCA declines to add such a requirement by regulation because procedures for conflict resolution are to be specified by the Corporation. The FCA believes that the appropriateness of appeal procedures can only be evaluated in light of the policy and procedures, which are yet to be developed. Finally, since the Corporation's policy must be adopted by the Board, directors will have an opportunity to address the concerns expressed in the FCC's letter as they deem appropriate. At the request of the FCC, the FCA changed ``highest standards'' to ``high standards'' in Sec. 650.4(a)(1) to achieve consistency with the regulation governing Farm Credit banks and associations. The FCA finds it unnecessary to define ``director'' as the FCC requested. The FCA previously eliminated the definition in its proposed rules for Farm Credit banks and associations, making both regulations consistent. List of Subjects in 12 CFR Part 650 Agriculture, Banks, Banking, Conflicts of interest, Rural areas. For the reasons stated in the preamble, a new part 650 of chapter VI, title 12 of the Code of Federal Regulations is added to read as follows: PART 650--FEDERAL AGRICULTURAL MORTGAGE CORPORATION Subpart A--Conflicts of Interest Sec. 650.1 Definitions. 650.2 Conflict-of-interest policy. 650.3 Implementation of policy. 650.4 Director, officer, employee, and agent responsibilities. Subpart B--[Reserved] Authority: Secs. 5.9, 5.17, 8.11 of the Farm Credit Act; 12 U.S.C. 2243, 2252, 2279aa-11; sec. 514 of Pub. L. 102-552, 106 Stat. 4102. Subpart A--Conflicts of Interest Sec. 650.1 Definitions. (a) Agent means any person (other than a director, officer, or employee of the Corporation) who represents the Corporation in contacts with third parties or who provides professional services such as legal, accounting, or appraisal services to the Corporation. (b) Affiliate means any entity established under authority granted to the Corporation under section 8.3(b)(13) of the Farm Credit Act of 1971, as amended. (c) Corporation means the Federal Agricultural Mortgage Corporation and its affiliates. (d) Employee means any salaried individual working part-time, full- time, or temporarily for the Corporation. (e) Entity means a corporation, company, association, firm, joint venture, partnership (general or limited), society, joint stock company, trust (business or otherwise), fund, or other organization or institution. (f) Material, when applied to a potential conflict of interest, means the conflicting interest is of sufficient magnitude or significance that a reasonable observer with knowledge of the relevant facts would question the ability of the person having such interest to discharge official duties in an objective and impartial manner in furtherance of the interests and statutory purposes of the Corporation. (g) Officer means the salaried president, vice presidents, secretary, treasurer, and general counsel, or other person, however designated, who holds a position of similar authority in the Corporation. (h) Person means individual or entity. (i) Potential conflict of interest means a director, officer, or employee of the Corporation has an interest in a transaction, relationship, or activity that might adversely affect, or appear to adversely affect, the ability of the director, officer, or employee to perform his official duties on behalf of the Corporation in an objective and impartial manner in furtherance of the interest of the Corporation and its statutory purposes. For the purpose of determining whether a potential conflict of interest exists, the following interests shall be imputed to a person subject to this regulation as if they were that person's own interests: (1) Interests of that person's spouse; (2) Interests of that person's minor child; (3) Interests of that person's general partner; (4) Interests of an organization or entity that the person serves as officer, director, trustee, general partner or employee; and (5) Interests of a person, organization, or entity with which that person is negotiating for or has an arrangement concerning prospective employment. (j) Resolved, when applied to a potential conflict of interest that the Corporation has determined is material, means that circumstances have been altered so that a reasonable observer with knowledge of the relevant facts would conclude that the conflicting interest would not adversely affect the person's performance of official duties in an objective and impartial manner in furtherance of the interests and statutory purposes of the Corporation. Sec. 650.2 Conflict-of-interest policy. The Corporation shall establish and administer a conflict-of- interest policy that will provide reasonable assurance that the directors, officers, employees, and agents of the Corporation discharge their official responsibilities in an objective and impartial manner in furtherance of the interests and statutory purposes of the Corporation. The policy shall, at a minimum: (a) Define the types of transactions, relationships, or activities that could reasonably be expected to give rise to potential conflicts of interest. (b) Require each director, officer, and employee to report in writing, annually, and at such other times as conflicts may arise, sufficient information about financial interests, transactions, relationships, and activities to inform the Corporation of potential conflicts of interest; (c) Require each director, officer, and employee who had no transaction, relationship, or activity required to be reported under paragraph (b) of this section at any time during the year to file a signed statement to that effect; (d) Establish guidelines for determining when a potential conflict is material in accordance with this subpart; (e) Establish procedures for resolving or disclosing material conflicts of interest. (f) Provide internal controls to ensure that reports are filed as required and that conflicts are resolved or disclosed in accordance with this subpart. (g) Notify directors, officers, and employees of the conflict-of- interest policy and any subsequent changes thereto and allow them a reasonable period of time to conform to the policy. Sec. 650.3 Implementation of policy. (a) The Corporation shall disclose any unresolved material conflicts of interest involving its directors, officers, and employees to: (1) Shareholders through annual reports and proxy statements; and (2) Investors and potential investors through disclosure documents supplied to them. (b) The Corporation shall make available to any shareholder, investor, or potential investor, upon request, a copy of its policy on conflicts of interest. The Corporation may charge a nominal fee to cover the costs of reproduction and handling. (c) The Corporation shall maintain all reports of all potential conflicts of interest and documentation of materiality determinations and resolutions of conflicts of interest for a period of 6 years. Sec. 650.4 Director, officer, employee, and agent responsibilities. (a) Each director, officer, employee, and agent of the Corporation shall: (1) Conduct the business of the Corporation following high standards of honesty, integrity, impartiality, loyalty, and care, consistent with applicable law and regulation in furtherance of the Corporation's public purpose; (2) Adhere to the requirements of the conflict-of-interest policy established by the Corporation and provide any information the Corporation deems necessary to discharge its responsibilities under this subpart. (b) Directors, officers, employees, and agents of the Corporation shall be subject to the penalties of part C of title V of the Farm Credit Act of 1971, as amended, for violations of this regulation, including failure to adhere to the conflict-of-interest policy established by the Corporation. Subpart B--[Reserved] Dated: February 23, 1994. Curtis M. Anderson, Secretary, Farm Credit Administration Board. [FR Doc. 94-4536 Filed 2-28-94; 8:45 am] BILLING CODE 6705-01-P