§ 2635.402 - Disqualifying financial interests.

§ 2635.402 Disqualifying financial interests.

(a) Statutory prohibition. An employee is prohibited by criminal statute, 18 U.S.C. 208(a), from participating personally and substantially in an official capacity in any particular matter in which, to his the employee's knowledge, he the employee or any person whose interests are imputed to him the employee under this statute has a financial interest, if the particular matter will have a direct and predictable effect on that interest.

Note 1 to paragraph (a):

Standards applicable when seeking non-Federal employment are contained in subpart F of this part and, if followed, will ensure that an employee does not violate 18 U.S.C. 208(a) or this section when he the employee is negotiating for or has an arrangement concerning future employment. In all other cases where when the employee's participation would violate 18 U.S.C. 208(a), an employee shall disqualify himself from participation must recuse from participating in the particular matter in accordance with paragraph (c) of this section or obtain a waiver or determine that an exemption applies, as described in paragraph (d) of this section.

(b) Definitions. For purposes of this section, the following definitions shall apply:

(1) Direct and predictable effect. (i) A particular matter will have a direct effect on a financial interest if there is a close causal link between any decision or action to be taken in the matter and any expected effect of the matter on the financial interest. An effect may be direct even though it does not occur immediately. A particular matter will not have a direct effect on a financial interest, however, if the chain of causation is attenuated or is contingent upon the occurrence of events that are speculative or that are independent of, and unrelated to, the matter. A particular matter that has an effect on a financial interest only as a consequence of its effects on the general economy does not have a direct effect within the meaning of this subpart.

(ii) A particular matter will have a predictable effect if there is a real, as opposed to a speculative possibility that the matter will affect the financial interest. It is not necessary, however, that the magnitude of the gain or loss be known, and the dollar amount of the gain or loss is immaterial.

Note 2 to paragraph (b)(1):

If a particular matter involves a specific party or parties, generally the matter will at most only have a direct and predictable effect, for purposes of this subpart, on a financial interest of the employee in or with a party, such as the employee's interest by virtue of owning stock. There may, however, be some situations in which, under the

above standards

standards of this paragraph (b)(1), a particular matter will have a direct and predictable effect on an employee's financial interests in or with a nonparty. For example, if a party is a corporation, a particular matter may also have a direct and predictable effect on an employee's financial interests through ownership of stock in an affiliate, parent, or subsidiary of that party. Similarly, the disposition of a protest against the award of a contract to a particular company may also have a direct and predictable effect on an employee's financial interest in another company listed as a subcontractor in the proposal of one of the competing offerors.

Example 1 to paragraph (b)(1): An employee of the National Library of Medicine at the National Institutes of Health has just been asked to serve on the technical evaluation panel to review proposals for a new library computer search system. DEF Computer Corporation, a closely held company in which

he and his wife

the employee and their spouse own a majority of the stock, has submitted a proposal. Because award of the systems contract to DEF or to any other offeror will have a direct and predictable effect on

both his and his wife's financial interests

the financial interests of both the employee and the spouse, the employee cannot participate on the technical evaluation team unless

his

this disqualification has been waived.

Example 2 to paragraph (b)(1): Upon assignment to the technical evaluation panel, the employee in

the preceding example

example 1 to this paragraph (b)(1) finds that DEF Computer Corporation has not submitted a proposal. Rather, LMN Corp., with which DEF competes for private sector business, is one of the six offerors. The employee

is

need not

disqualified

recuse from serving on the technical evaluation panel. Any effect on the employee's financial interests as a result of the agency's decision to award or not award the systems contract to LMN would be at most indirect and speculative.

(2) Imputed interests. For purposes of 18 U.S.C. 208(a) and this subpart, the financial interests of the following persons will serve to disqualify require the recusal of an employee to the same extent as if they were the employee's own interests:

(i) The employee's spouse;

(ii) The employee's minor child;

(iii) The employee's general partner;

(iv) An organization or entity which the employee serves as officer, director, trustee, general partner, or employee; and

(v) A person with whom the employee is negotiating for or has an arrangement concerning prospective employment. (Employees who are seeking other employment should refer to and comply with the standards in subpart F of this part.)

.

Example 1 to paragraph (b)(2): An employee of the Department of Education serves without compensation on the board of directors of Kinder World, Inc., a nonprofit corporation that engages in good works. Even though

her

the employee's personal financial interests will not be affected, the employee must

disqualify herself

recuse from participating in the review of a grant application submitted by Kinder World. Award or denial of the grant will affect the financial interests of Kinder World and its financial interests are imputed to

her

the employee as a member of its board of directors.

Example 2 to paragraph (b)(2): The spouse of an employee of the Food and Drug Administration has obtained a position with a well-established biomedical research company. The company has developed an artificial limb for which it is seeking FDA approval and the employee would ordinarily be asked to participate in the FDA's review and approval process. The spouse is a salaried employee of the company and has no

direct ownership interest in the company. Nor does she have an

stock or other direct or indirect ownership interest

, as would be the case, for example, if she were participating

in

a pension plan that held stock in

the company.

Her

The spouse's position with the company is such that the granting or withholding of FDA approval will not have a direct and predictable effect on

her

their salary or

on her

continued employment with the company.

Since

Because the FDA approval process will not affect

his

the spouse's financial interests, this section does not require the employee

is not disqualified under § 2635.402

to recuse from participating in that process. Nevertheless,

the financial interests of the

because the impartiality principle is implicated as a result of the employee's covered relationship with the spouse's employer

may be disqualifying under the impartiality principle

, as

implemented

identified at § 2635.502(b)(1)(iii), the employee must follow the procedures established in § 2635.502 before participating in the FDA's review and approval process.

(3) Particular matter. The term particular matter encompasses only matters that involve deliberation, decision, or action that is focused upon the interests of specific persons, or a discrete and identifiable class of persons. Such a matter is covered by this subpart even if it does not involve formal parties and may include governmental action such as legislation or policy-making that is narrowly focused on the interests of such a discrete and identifiable class of persons. The term particular matter, however, does not extend to the consideration or adoption of broad policy options that are directed to the interests of a large and diverse group of persons. The particular matters covered by this subpart include a judicial or other proceeding, application, request for a ruling or other determination, contract, claim, controversy, charge, accusation, or arrest.

Example 1 to paragraph (b)(3): The Internal Revenue Service's amendment of its regulations to change the manner in which depreciation is calculated is not a particular matter, nor is the Social Security Administration's consideration of changes to its appeal procedures for disability claimants.

Example 2 to paragraph (b)(3): Consideration by the

Interstate Commerce Commission

Surface Transportation Board of regulations establishing safety standards for trucks on interstate highways involves a particular matter.

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

(c) DisqualificationRecusal. Unless the employee is authorized to participate in the particular matter by virtue of a waiver or exemption described in paragraph (d) of this section or because the interest has been divested in accordance with paragraph (e) of this section, an employee shall disqualify himself must recuse from participating in a particular matter in which, to his the employee's knowledge, he the employee or a person whose interests are imputed to him the employee has a financial interest, if the particular matter will have a direct and predictable effect on that interest. Disqualification Recusal is accomplished by not participating in the particular matter.

(1) Notification. An employee Employees who becomes become aware of the need to disqualify himself recuse from participation participating in a particular matter to which he has been assigned should notify the person responsible for his assignment. An employee who is responsible for his own assignment should they have been assigned must take whatever steps are necessary to ensure that he does they do not participate in the matter from which he is disqualified. Appropriate oral or written notification of the employee's disqualification their recusal may be made to coworkers by the employee an agency ethics official, coworkers, or a supervisor to ensure that the employee is not involved in a matter from which he is disqualified.document and help effectuate the recusal. Public filers as defined in subpart F of this part must comply with additional notification requirements set forth in § 2635.607 regarding negotiations for or agreement of future employment or compensation.

(2) Documentation. An employee Employees need not file a written disqualification statement unless he is recusal statements unless they are required by part 2634 of this chapter to file written evidence of compliance with an ethics agreement with the Office of Government Ethics or is asked a designated agency ethics official, or are specifically directed by an agency ethics official or the person responsible for his assignment their assignments to file a written disqualification statementrecusal statements. However, an employee may elect it is often prudent for employees to create a record of his their actions by providing written notice to an agency ethics official, a supervisor, or other appropriate official. In addition, public filers as defined in subpart F of this part must comply with the documentation requirements set forth in § 2635.607 regarding negotiations for or agreement of future employment or compensation.

Example 1 to paragraph (c): An Assistant Secretary of the Department of the Interior owns recreational property that borders on land which is being considered for annexation to a national park. Annexation would directly and predictably increase the value of

her

the Assistant Secretary's vacation property and, thus,

she is disqualified

the Assistant Secretary must recuse from participating in any way in the Department's deliberations or decisions regarding the annexation. Because

she

the Assistant Secretary is responsible for determining

which matters she will work on, she may accomplish her disqualification

their own work assignments, they may accomplish their recusal merely by ensuring that

she does

they do not participate in the particular matter. Because of the level of

her

their position, however, the Assistant Secretary might be wise to establish a record that

she has

they have acted properly by providing a written

disqualification

recusal statement to an official superior and by providing written notification of the

disqualification

recusal to subordinates to ensure that they do not raise or discuss

with her

any issues related to the annexation with the Assistant Secretary.

(d) Waiver of or exemptions from disqualificationrecusal requirement. An employee who would otherwise be disqualified by required to recuse under 18 U.S.C. 208(a) may be permitted to participate in a particular matter where if the otherwise disqualifying financial interest that would otherwise require recusal is the subject of a regulatory exemption or individual waiver described in this paragraph (d), or results from certain Indian birthrights as described in 18 U.S.C. 208(b)(4).

(1) Regulatory exemptions. Under 18 U.S.C. 208(b)(2), regulatory exemptions of general applicability have been issued by the Office of Government Ethics, based on its determination that particular interests are too remote or too inconsequential to affect the integrity of the services of employees to whom those exemptions apply. See the regulations in part 2640, subpart B of part 2640 of this chapter, which supersede any preexisting agency regulatory exemptions.

(2) Individual waivers. An individual waiver enabling the employee to participate in one or more particular matters may be issued under 18 U.S.C. 208(b)(1) if, in advance of the employee's participation:

(i) The employee:

(A) Advises the Government official responsible for the employee's appointment (or other Government official to whom authority to issue such a waiver for the employee has been delegated) about the nature and circumstances of the particular matter or matters; and

(B) Makes full disclosure to such official of the nature and extent of the

disqualifying

relevant financial interest; and

(ii) Such official determines, in writing, that the employee's financial interest in the particular matter or matters is not so substantial as to be deemed likely to affect the integrity of the services which the Government may expect from such employee. See

also

part 2640, subpart C of

part 2640 of

this chapter

, for

(providing additional guidance).

(3) Federal advisory committee member waivers. An individual waiver may be issued under 18 U.S.C. 208(b)(3) to a special Government employee serving on, or under consideration for appointment to, an advisory committee within the meaning of the Federal Advisory Committee Act if the Government official responsible for the employee's appointment (or other Government official to whom authority to issue such a waiver for the employee has been delegated):

(i) Reviews the financial disclosure report filed by the special Government employee pursuant to

the Ethics in Government Act of 1978

5 U.S.C. chapter 131; and

(ii) Certifies in writing that the need for the individual's services outweighs the potential for a conflict of interest created by the

otherwise disqualifying

relevant financial interest. See

also

part 2640, subpart C, of

part 2640 of

this chapter

, for

(providing additional guidance).

(4) Consultation and notification regarding waivers. When practicable, an official is required to consult formally or informally with the Office of Government Ethics prior to granting a waiver referred to in paragraph (d)(2) or (3) of this section. A copy of each such waiver is to be forwarded to the Director of the Office of Government Ethics.

(e) Divestiture of a disqualifying financial interest. Upon sale or other divestiture of the asset or other interest that causes his disqualification from participation would otherwise require the employee to recuse from participating in a particular matter, 18 U.S.C. 208(a) and paragraph (c) of this section will no longer prohibit the employee's participation in the matter.

(1) Voluntary divestiture. An employee who would otherwise be disqualified required to recuse from participation participating in a particular matter may voluntarily sell or otherwise divest himself of the interest that causes create the disqualificationrecusal requirement.

(2) Directed divestiture. An employee may be required to sell or otherwise divest himself of the disqualifying financial interest if his the continued holding of that interest is prohibited by statute or by agency supplemental regulation issued in accordance with § 2635.403(a), or if the agency determines in accordance with § 2635.403(b) that a substantial conflict exists between the financial interest and the employee's duties or accomplishment of the agency's mission.

(3) Eligibility for special tax treatment. An employee who is directed to divest an interest may be eligible to defer the tax consequences of divestiture under part 2634, subpart J, of part 2634 of this chapter. An employee who divests before obtaining a certificate of divestiture will not be eligible for this special tax treatment.

(f) Official duties that give rise to potential conflicts. Where an employee's When their official duties create a substantial likelihood that the employee they may be assigned to a particular matter from which he is disqualified, the employee should advise his supervisor or other person responsible for his they would be required to recuse, employees should advise their supervisors or other persons responsible for their assignments of that potential so that conflicting assignments can be avoided, consistent with the agency's needs.

[57 FR 35042, Aug. 7, 1992, as amended at 62 FR 48747, Sept. 17, 1997]