96-31837. Interpretation, Exemptions and Waiver Guidance Concerning 18 U.S.C. 208 (Acts Affecting a Personal Financial Interest)  

  • [Federal Register Volume 61, Number 244 (Wednesday, December 18, 1996)]
    [Rules and Regulations]
    [Pages 66830-66851]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-31837]
    
    
    
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    _______________________________________________________________________
    
    Part III
    
    
    
    
    
    Office of Government Ethics
    
    
    
    
    
    _______________________________________________________________________
    
    
    
    5 CFR Part 2640
    
    
    
    Interpretation, Exemptions and Waiver Guidance Concerning 18 U.S.C. 208 
    (Acts Affecting a Personal Financial Interest); Final Rule
    
    Federal Register / Vol. 61, No. 244 / Wednesday, December 18, 1996 / 
    Rules and Regulations
    
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    OFFICE OF GOVERNMENT ETHICS
    
    5 CFR Part 2640
    
    RIN 3209-AA09
    
    
    Interpretation, Exemptions and Waiver Guidance Concerning 18 
    U.S.C. 208 (Acts Affecting a Personal Financial Interest)
    
    AGENCY: Office of Government Ethics (OGE).
    
    ACTION: Final rule.
    
    -----------------------------------------------------------------------
    
    SUMMARY: The Office of Government Ethics is issuing a final rule 
    describing circumstances under which the prohibitions contained in 18 
    U.S.C. 208(a) would be waived. Section 208(a) prohibits employees of 
    the executive branch from participating in an official capacity in 
    particular matters in which they, or certain persons or entities with 
    whom they have specified relationships, have a financial interest. 
    Section 208(b) of title 18 permits waivers of these prohibitions in 
    certain cases. First, section 208(b)(1) permits agencies to exempt 
    employees on a case-by-case basis from the disqualification provisions 
    of section 208(a). Similarly, section 208(b)(3) permits agencies to 
    waive, in certain cases, the disqualification requirement that would 
    apply to special Government employees serving on a Federal advisory 
    committee. Finally, under section 208(b)(2), the Office of Government 
    Ethics has the authority to promulgate executive branchwide regulations 
    describing financial interests that are too remote or inconsequential 
    to warrant disqualification pursuant to section 208(a). This final 
    regulation describes those financial interests. It also provides 
    guidance to agencies on the factors to consider when issuing individual 
    waivers under section 208 (b)(1) or (b)(3).
    
    EFFECTIVE DATE: January 17, 1997.
    
    FOR FURTHER INFORMATION CONTACT: Marilyn L. Glynn, Office of Government 
    Ethics, telephone: 202-208-8000, TDD: 202-208-8025; FAX: 202-208-8037.
    
    SUPPLEMENTARY INFORMATION:
    
    I. Rulemaking History
    
        On September 11, 1995, the Office of Government Ethics (OGE) 
    published for comment a proposed rule to establish exemptions under 18 
    U.S.C. 208(b)(2) from the prohibition in the conflict of interest 
    statute at section 208(a). See 60 FR 47208-47233 (part II of the 
    September 11, 1995 daily FR issue). In part, the proposed rule also 
    provided guidance to agencies on issuing individual waivers of the 
    conflict of interest prohibition under 18 U.S.C. 208(b)(1) and (b)(3), 
    and on interpreting section 208 generally.
        The proposed rule was issued pursuant to 18 U.S.C. 208(d)(2) which 
    directs OGE, after consultation with the Attorney General, to adopt 
    uniform regulations exempting financial interests from the 
    applicability of section 208(a) for all or a portion of the executive 
    branch, and to provide guidance on the types of interests that may be 
    waived on an individual basis. Prior to 1989, the authority to 
    promulgate regulations implementing the previous version of section 
    208(b)(2) resided in the individual agencies as to their own respective 
    employees. However, the Ethics Reform Act of 1989 (Pub. L. No. 101-
    194), as amended, amended 18 U.S.C. 208 to eliminate the authority of 
    individual agencies to adopt agencywide regulatory exemptions and 
    granted branchwide authority to OGE.
        The Office of Government Ethics also published an interim rule on 
    August 28, 1995 which established a single exemption under 18 U.S.C. 
    208(b)(2) for financial interests that arise from Federal Government 
    salary and benefits or from Social Security or veterans' benefits. See 
    60 FR 44706-44709 (part IX of the August 28, 1995 daily FR issue). The 
    interim rule, which became effective on the date of publication, was 
    codified at that time at 5 CFR 2640.101. However, the exemption in the 
    interim rule was also republished for consideration as part of the 
    proposed rule at 5 CFR 2640.203(d) published on September 11, 1995. 
    This single exemption is recodified in this final rule at 5 CFR 
    2640.203(d). Comments received on the interim rule were consolidated 
    with, and considered along with comments received on the proposed rule.
        The proposed rule and the interim rule each provided a 60-day 
    comment period and invited comments by agencies and the public. Timely 
    comments were received from 25 sources. After carefully considering all 
    comments and making appropriate modifications, the Office of Government 
    Ethics is publishing this final rule after consultation with the Office 
    of Personnel Management and, pursuant to section 201(c) of Executive 
    Order 12674, as modified by E.O. 12731, after obtaining the concurrence 
    of the Department of Justice.
    
    II. Summary of Comments
    
        All of the comments received were from executive branch Departments 
    and agencies, including two from agency Inspectors General. Many 
    commented on several different sections of the proposed rule. The 
    Office of Government Ethics has considered each comment submitted by 
    each commenter and those determined to be significant are discussed 
    below in the context of the particular subparts or sections to which 
    they pertain. We have not specifically discussed comments that were 
    either generally laudatory or generally critical, either of style or of 
    substantive content, or that offered editorial suggestions or 
    suggestions regarding format that would not affect meaning. In 
    addition, we have not specifically discussed comments that were plainly 
    unreasonable or that exhibited a clear misunderstanding of the purpose 
    or language of the proposed regulation or of section 208. The following 
    comments fall within these latter categories: assertions that certain 
    types of interests (such as Government securities) do not raise section 
    208 implications for any Government employees; statements that certain 
    exemptions insult Federal employees by suggesting that performance of 
    official duties could violate a criminal law; and statements that 
    section 208 applies only to particular matters involving specific 
    parties. We have also not addressed comments that have been rendered 
    inapplicable by changes to the regulation which have been made for 
    other reasons, or that merely recommended revisions to examples 
    describing agency programs. Finally, we have not addressed comments 
    that call for a discussion of section 208 generally, but that are not 
    related to any particular provision of the regulation.
        A number of commenters were generally satisfied with the approach 
    taken in the proposed rule in describing the exemptions. Most of these 
    commenters indicated that the rule as proposed would resolve some long-
    standing issues and that it would address most of the situations in 
    which agencies have been routinely issuing waivers under section 
    208(b)(1) or (b)(3). A fewer number of commenters were generally 
    critical of the rule, citing its complexity and its attempt to devise 
    exemptions that apply in situations that do not concern a majority of 
    executive branch employees. To address these concerns, some of the 
    exemptions were rewritten to simplify language. For example, in certain 
    provisions, the term ``direct or beneficial ownership'' was deleted and 
    replaced simply with the term ``ownership.'' In other exemptions, the 
    term ``any particular matter, whether of general applicability or 
    involving specific parties,'' was replaced with the term ``any 
    particular matter.'' Changes
    
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    of this type have been made to make the rule easier to understand, and 
    are not intended to change a provision's substantive meaning from that 
    proposed.
        In addition, a few proposed exemptions were eliminated to reduce 
    the rule's complexity. The deleted exemptions would have been generally 
    difficult to interpret and apply and did not appear to be relevant to a 
    majority of employees. Each of these exemptions is discussed under the 
    relevant subpart below.
        Certain other proposed exemptions were retained in this final rule 
    even though they are not relevant to a large number of employees. 
    Because individual agencies no longer have authority to issue their own 
    exemptions, this exemption rule, where possible, must address conflicts 
    issues that affect employees of only a few agencies.
        Finally, OGE, in adopting this final rule, has corrected a few 
    typographical errors and made a few other minor clarifying revisions to 
    the rule as proposed.
    
    General Comments
    
        Some agencies made suggestions, or raised issues, about matters 
    that did not concern any specific subpart or provision of the 
    regulation. One agency recommended that the rule address when, or under 
    what circumstances, an employee may engage in transactions (such as 
    buying or selling stock) involving a financial interest upon which a 
    particular agency matter will have a direct and predictable effect. The 
    Office of Government Ethics has not made any change in the regulation 
    to address this comment. Each exemption applies whether or not an 
    employee is engaged in a transaction that would involve a financial 
    interest affected by an agency matter in which the employee is 
    participating.
        Another agency suggested that the Preamble accompanying the 
    proposed rule be preserved as part of the final regulation and 
    incorporated into the text of the regulation as published in the Code 
    of Federal Regulations. The Office of Government Ethics has not adopted 
    this suggestion since it would be inappropriate to incorporate 
    narrative explanations of a rule into the text of the rule itself. 
    However, agency ethics officials and others are free to consult the 
    Preamble of the proposed rule when interpreting section 208.
        One agency asked OGE to explain how the exemptions are intended to 
    ``mesh'' with one another. The regulation permits an employee to apply 
    or utilize all the exemptions that might be applicable in a particular 
    situation. Thus, for example, an employee might be called upon to act 
    in a particular matter affecting a certain company. He could act in the 
    matter even if: (1) He owns $4,000 worth of stock in the company; (2) 
    he owns two diversified mutual funds that are invested in the company; 
    and (3) his general partner owns $100,000 worth of stock in the 
    company.
        The Office of Government Ethics did not adopt one agency's 
    suggestion to add a provision clarifying that the impartiality 
    provisions in subpart E of the Standards of Ethical Conduct for 
    Employees of the Executive Branch may be applied even when a regulatory 
    exemption is applicable under this regulation. As the note in 5 CFR 
    2635.501(b) indicates, the granting of a statutory waiver constitutes a 
    determination that ``the interest of the Government in the employee's 
    participation outweighs the concern that a reasonable person may 
    question the integrity of agency programs and operations.''
        Finally, one agency requested that the final rule become effective 
    no sooner than three months after the date of publication so the agency 
    has adequate time to inform employees of the rule's existence and to 
    conduct training for employees. The Office of Government Ethics does 
    not agree that the rule needs a three-month effective date. Agency 
    programs and operations will not be harmed if employees are unaware of 
    the rule's existence on the date it becomes effective. Employees who 
    have not yet been informed of the exemptions that are applicable to 
    them will simply continue to disqualify themselves from matters 
    affecting their financial interests until they are advised of the 
    rule's provisions. And, in any case, agencies will no doubt apprise 
    their employees promptly of the final rule once it becomes effective.
    
    Subpart A--General Provisions
    
    Section 2640.102  Definitions
        One agency objected to proposed definitions that cross-reference 
    statutes unrelated to ethics considerations. The agency recommended 
    keeping each definition self-contained so that employees do not have to 
    consult other sources to determine if an exemption applies. The Office 
    of Government Ethics has not adopted this recommendation. Reiterating 
    the text of the cross-referenced statutes would complicate and lengthen 
    the regulation considerably. On the other hand, paraphrasing the 
    language of the statutes might create ambiguity about the meaning of 
    certain definitions. Because this regulation establishes exemptions 
    from a criminal statute, the exemptions need to be described with 
    specificity.
        An agency stated that the term ``institution of higher education'' 
    did not need to be defined at Sec. 2640.102(g) as renumbered because it 
    has a commonly-understood meaning. The Office of Government Ethics 
    disagrees. The exemptions relating to such institutions (Sec. 2640.203 
    (b) and (c)) are intended to apply in the case of colleges and 
    universities, and other similar post- secondary institutions. Not all 
    post-secondary institutions are encompassed by the definition 
    referenced at Sec. 2640.102(g). For example, profit-making post-
    secondary institutions are not included in the definition of 
    ``institution of higher education'' at 20 U.S.C. 1141(a).
        No changes have been made in this final regulation to address a 
    concern expressed by one agency that the definition of ``publicly 
    traded security'' at Sec. 2640.102(p) as proposed inadvertently 
    excludes securities issued by Government entities such as the 
    Government National Mortgage Association. Most executive branch 
    employees would not have a disqualifying financial interest in 
    Government securities. In the case of employees who do have a 
    disqualifying financial interest, however, the Office of Government 
    Ethics could not determine that a regulatory exemption applicable to 
    every such employee would be appropriate.
        Technical corrections have been made to the proposed definitions of 
    ``long-term Federal Government security'' and ``short-term Federal 
    Government security'' at Sec. 2640.102(i), as renumbered and 
    Sec. 2640.102(s). In addition, changes have been made in the proposed 
    definition of the term ``diversification'' to reflect changes made in 
    the exemptions at Sec. 2640.201, discussed below. Finally, the term 
    ``unit investment trust'' at renumbered Sec. 2640.102(u) also has been 
    revised to accommodate changes made in the definition of the term 
    ``diversification.'' The revision, however, does not change the 
    substantive meaning of the term ``unit investment trust.''
    Section 2640.103  Prohibition
        Two agencies questioned why the exemptions were not proposed to be 
    added to 5 CFR 2635.402 of the Standards of Ethical Conduct for 
    Employees of the Executive Branch, and why language from that provision 
    is repeated in the exemption rule. The Office of Government Ethics 
    considered consolidating the exemptions and
    
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    interpretations of section 208 in either part 2635 or part 2640. 
    However, changes could not be made to part 2635 without significantly 
    altering the integrity of that part. On the other hand, the language of 
    Sec. 2635.402 could not be repeated verbatim in part 2640 since much of 
    it deals with the implementation of other parts of the Standards of 
    Ethical Conduct. Accordingly, OGE decided to repeat in part 2640 as 
    proposed and, as issued as a final rule in this rulemaking document, 
    those parts of Sec. 2635.402 that are relevant to the overall 
    implementation of section 208. Where language between the two 
    provisions varies, no differences in interpretation are intended. 
    However, OGE intends to review the text of Sec. 2635.402 to determine 
    whether any language is substantively inconsistent with part 2640 and 
    make any appropriate modifications.
        One agency criticized OGE for describing in the proposed rule 
    certain particular matters as ``particular matters of general 
    applicability'' and stated that use of the term would needlessly 
    confuse employees. On the other hand, the agency agreed that the term 
    ``particular matters involving specific parties'' is an established and 
    useful concept. Another agency stated that different exemptions for 
    different types of matters (i.e. those involving parties and those 
    without parties) are unnecessary. The Office of Government Ethics 
    believes that, in certain circumstances, different exemptions are 
    warranted for matters that do not involve specific parties. Agencies 
    currently take these distinctions into account when issuing individual 
    waivers under section 208(b)(1), and it is reasonable to establish 
    somewhat broader regulatory exemptions for nonparty particular matters. 
    To address concerns about the meaning of the term particular matter of 
    general applicability, OGE has added a definition, at Sec. 2640.102(m) 
    of this final rule, describing such matters as those which are focused 
    on the interests of a discrete and identifiable class of persons, but 
    do not involve specific parties.
        One agency noted that it has identified certain classes of matters 
    that are not particular matters because they are not sufficiently 
    focused on the interests of a discrete and identifiable class of 
    persons, even though the matters may have some collateral effect on 
    identified persons. The agency asked that OGE identify other matters 
    that are not focused enough to be considered particular matters. In the 
    absence of specific facts, OGE is unable to identify such matters. For 
    example, although the agency asserted that basic research is not a 
    particular matter, OGE believes that a grant to a university to conduct 
    such research is a particular matter. Without sufficient specificity of 
    this type, it would be misleading to state conclusively that certain 
    Government activities or operations are not particular matters.
        Several agencies commented on the examples in proposed 
    Sec. 2640.103 that illustrate various terms in section 208. One agency 
    stated that Example 8 following Sec. 2640.103(a)(1) incorrectly 
    suggests that legislation can never constitute a particular matter; 
    another suggested that a certain provision dealing with charges for 
    prescription drugs that is in a larger piece of health care legislation 
    is not a particular matter because it affects everyone in the United 
    States. The Office of Government Ethics does not disagree that some 
    legislation is narrowly focused on the interests of a discrete and 
    identifiable class of persons, and would therefore be a particular 
    matter. For example, where a particular provision in a larger piece of 
    legislation focuses specifically on the regulation of prescription drug 
    prices, the provision is focused on the interests of pharmaceutical 
    companies, physicians, and pharmacies and would thus constitute a 
    particular matter.
        One agency asked that OGE revise Example 2, and eliminate Example 
    3, following Sec. 2640.103(a)(3) as proposed. Because the requested 
    revision would change the concept Example 2 was intended to illustrate, 
    the Office of Government Ethics did not adopt this suggestion. For 
    similar reasons, OGE did not eliminate Example 3. Although the 
    commenting agency stated that the situation depicted in the example is 
    not wholly realistic, OGE believes the example provides a reasonable 
    illustration of the meaning of the term ``direct and predictable 
    effect.'' At the suggestion of another agency, OGE revised Example 4 
    following Sec. 2640.103(a)(3) to more clearly illustrate the concept 
    that section 208 applies when the Government matter has a direct and 
    predictable effect on the employee's financial interest.
        The Office of Government Ethics did not adopt one agency's request 
    that the regulation define the term ``general partner.'' The term 
    ``general partner'' does not have a special or unique meaning for 
    purposes of section 208. The term has a generally accepted meaning 
    within the area of partnership law.
        Finally, one agency suggested that OGE revise proposed 
    Sec. 2640.103(e) to include a statement noting that resignation from an 
    outside position can end a disqualifying financial interest. The Office 
    of Government Ethics has not revised the provision in this final rule 
    because the current language of Sec. 2640.103(e) encompasses 
    divestiture of ``other interest[s]'' that cause disqualification from 
    participation in a particular matter.
    
    Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)
    
    Section 2640.201  Exemptions for Interests in Mutual Funds, Unit 
    Investment Trusts, and Employee Benefit Plans
    Common Trust Funds
        As proposed, the regulation at Sec. 2640.201(a) contained an 
    exemption for diversified common trust funds. The term ``diversified'' 
    was defined in reference to a regulation of the Office of the 
    Comptroller of the Currency, 12 CFR 9.18, which required common trust 
    funds maintained by State or national banks to be diversified. On 
    December 21, 1995, the Office of the Comptroller of the Currency (OCC) 
    published a proposed rule that would eliminate the diversification 
    requirement for common trust funds. See 60 FR 66163, 66170. The 
    Preamble to the proposed rule states that the ``* * * restrictions have 
    at times interfered with optimal management of common trust funds * * 
    *.'' Id. at 66170. If the revised regulation OCC becomes effective, 
    there will no longer be any assurance that common trust funds will 
    contain any particular number or types of assets. In the absence of any 
    other standardized way of determining whether such funds will be even 
    minimally diversified, the Office of Government Ethics cannot conclude, 
    as a regulatory matter, that an employee's interest arising from a fund 
    will be remote and inconsequential. Accordingly, the exemption for 
    common trust funds has been deleted from this final rule.
    Diversified Mutual Funds
        Four agencies stated that the exemption for diversified mutual 
    funds proposed at Sec. 2640.201(a) was too complicated for the average 
    employee to apply or for ethics officials to implement. As proposed, 
    the exemption would have applied to mutual funds that are diversified 
    management companies as defined in the Investment Company Act of 1940, 
    15 U.S.C. 80a-5(b)(1). Of the four commenters, one recommended simply 
    leaving the term ``diversified'' undefined; the second advocated 
    dropping any diversification requirement; the third recommended linking 
    the definition of diversification
    
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    to sector mutual funds; and the fourth recommended that the exemption 
    apply simply to publicly traded mutual funds.
        Six agencies expressed particular concern that the proposed 
    definition of diversified mutual fund (as well as the definition for 
    diversified common trust fund, unit investment trust, and employee 
    benefit plan) would not be consistent with the definition of Excepted 
    Investment Fund (EIF), as that term is used for purposes of financial 
    reporting. These agencies expressed the view that employees would be 
    confused and frustrated by dealing with different definitions of 
    diversification. Three of the agencies suggested that we modify EIF 
    reporting requirements to make them consistent with the diversification 
    standards in the exemption rule. Another agency suggested that the EIF 
    standards be adopted in the exemption rule, while a third agency 
    expressed no preference for either approach as long as the standards 
    would be made consistent.
        Based on these concerns, the Office of Government Ethics has 
    decided to revise the definition of ``diversified'' as that term is 
    used in Sec. 2640.201(a) in connection with mutual funds. Accordingly, 
    the term ``diversified'' in Sec. 2640.102(b) of this final rule now 
    states that ``diversified means that the fund * * * does not have a 
    stated policy of concentrating its investments in any industry, 
    business, single country other than the United States, or bonds of a 
    single State within the United States.'' In other words, the exemption 
    for diversified mutual funds applies to all mutual funds except sector 
    funds. An agency employee or ethics official can determine if a fund is 
    a sector fund by reading the prospectus, or by calling a broker or fund 
    manager. Often, it is possible to learn whether a fund is a sector fund 
    simply from the fund's name (i.e. Vanguard Specialized Portfolios: 
    Healthcare). In any event, a fund's concentration policy, if any, is 
    required under Securities and Exchange Commission (SEC) regulations to 
    be described in the prospectus.
        The Office of Government Ethics has not, however, revised the 
    definition of the term ``mutual fund'' as proposed at Sec. 2640.102(l) 
    and which is now in renumbered Sec. 2640.102(k)). In order for the 
    exemption to apply, the mutual fund must still be a true fund, i.e. a 
    management company registered under the Investment Company Act of 1940, 
    as amended, 15 U.S.C. 80a-1 et seq. Informal collections of stocks, 
    bonds and similar holdings, such as family trusts, are not mutual funds 
    because they are not registered management companies.
        The Office of Government Ethics has not adopted recommendations to 
    make the definition of the term diversified mutual fund the same as the 
    definition of Excepted Investment Fund (EIF) as that term is used in 5 
    CFR 2634.310(c) for purposes of financial reporting. As explained in 
    the Preamble to the proposed rule, using the numerical standards of the 
    EIF definition (no more than 5% of a fund's portfolio invested in any 
    one issuer nor more than 20% in any particular economic or geographic 
    sector) would be impractical and burdensome because mutual fund assets 
    continuously change and because employee participation in particular 
    matters typically occurs on continuing basis over time. Use of a 
    numerical standard is not a problem for purposes of financial reporting 
    because whether an asset is an EIF for those purposes is a 
    determination that must be made only once a year. And, relying on the 
    alternative definition of the term Excepted Investment Fund (i.e. that 
    the fund is publicly traded) does not advance conflicts of interest 
    concerns because publicly traded assets may still raise questions about 
    conflicts of interest. The Office of Government Ethics has not yet 
    determined whether it will seek to revise the definition of Excepted 
    Investment Fund to correspond with the term diversified mutual fund as 
    it is used in this regulation. Any such revision might require 
    Congressional action, since the standards for determining whether a 
    widely held investment fund is an Excepted Investment Fund are 
    statutory. See 5 U.S.C. app., section 102(f)(8) of the Ethics in 
    Government Act.
        Two agencies objected to the fact that the exemption for 
    diversified mutual funds was proposed to apply to employees of all 
    agencies. One agency recommended that the rule permit individual 
    agencies to decide whether to allow employees of their agencies to 
    apply the mutual fund exemption. The other agency suggested that it be 
    allowed to limit applicability of the exemption where the fund is an 
    international regional fund (e.g. the Pacific Basin Fund) and the 
    employee has duties focused on the region in question. The Office of 
    Government Ethics has not revised Sec. 2640.201(b) in this final rule 
    in response to these comments. OGE believes it is inappropriate to 
    permit certain agencies to limit the applicability of these exemptions. 
    The exemptions are devised with the assumption that the financial 
    interests described are ``remote or inconsequential'' in the case of 
    all executive branch employees. Of course, particular agencies might 
    want to consider whether they wish to prohibit the holding of certain 
    sector funds by employees in their agency supplemental standards of 
    ethical conduct regulations. See 5 CFR 2635.105.
    Sector Mutual Funds
        Six agencies commented on various aspects of Sec. 2640.201(b) of 
    the proposed rule dealing with sector mutual funds. Of these, one 
    agency specifically endorsed the definition of ``sector mutual fund'' 
    as that term is used in proposed Sec. 2640.201(b). Another agency, 
    however, characterized the proposed definition as too imprecise, and 
    appeared to recommend that OGE devise a numerical standard for 
    determining whether a fund concentrates in a particular sector. The 
    Office of Government Ethics did not adopt this suggestion. Because fund 
    managers often buy and sell holdings on a daily basis, it would be 
    practically impossible for employees to determine the composition of a 
    particular fund with any certainty on a particular date. Moreover, 
    determining whether a fund meets the present definition of sector 
    mutual fund should be less burdensome for employees because it does not 
    require them to undertake any numerical calculations. Employees simply 
    have to determine whether the fund has a policy of concentration. As 
    discussed above, SEC regulations require a mutual fund manager to 
    disclose such a policy, if any, in the fund's prospectus.
        Two other agencies stated that sector mutual funds should be 
    totally exempt from the prohibition in section 208. These agencies 
    argued that the proposed exemption for sector funds is too difficult to 
    administer and would effectively bar employees from investing in sector 
    funds with holdings related to the activities of their agencies. Both 
    agencies theorized that other agencies that disagreed with their 
    proposed approach could simply bar employees, in their agency 
    supplemental standards regulations, from holding sector funds. The 
    Office of Government Ethics has not adopted these recommendations, 
    since OGE cannot reasonably determine that the interests of every 
    executive branch employee in the holdings of a sector mutual fund are 
    remote and inconsequential for every particular matter in which he or 
    she might participate. For example, an employee of an executive branch 
    agency who invests in an energy-related sector fund might direct his 
    staff to draft a regulation rescinding certain requirements relating to 
    the disposal of hazardous waste materials. The effect of
    
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    the new regulation would be to significantly reduce outlays that 
    utility companies have to make to comply with regulatory requirements. 
    As a result, the companies' profits would increase, and the 
    corresponding value of funds that invest in the companies would also 
    increase. Under these circumstances, OGE could not say that the 
    employee's interest would be remote or inconsequential. Of course, the 
    section 208 issue would not arise if the holding was prohibited by an 
    agency supplemental regulation. However, OGE cannot compel agencies to 
    adopt, in their supplemental agency standards regulations, prohibitions 
    on holding sector mutual funds. Moreover, many agencies do not choose 
    to issue supplemental standards.
    Employee Benefit Plans
        A few agencies submitted comments on the proposed exemption for 
    employee benefits plans at Sec. 2640.201(c). The Office of Government 
    Ethics did not adopt one agency's suggestion that the requirement for 
    an independent trustee in Sec. 2640.201(c)(1)(iii)(A) as proposed be 
    eliminated. The Office of Government Ethics believes that a plan's 
    trustee should be independent of the plan's sponsor, or at least be a 
    registered investment advisor, to insure that investment selections are 
    made without regard to the plan sponsor's relationship with the 
    employee.
        Two agencies objected to the inclusion of the Thrift Savings Plan 
    for Federal employees in the list of employee benefit plans covered by 
    the exemption at proposed Sec. 2640.201(c). One of the agencies stated 
    that the class of persons affected by a matter which involves the 
    Thrift Plan is so large that any such matter could not be considered a 
    particular matter. The Office of Government Ethics does not agree with 
    this view. Employees who have invested in the Thrift Savings Plan are a 
    discrete and identifiable class of persons for purposes of section 208. 
    The agency alternatively argued, as did one other agency, that the 
    Thrift Plan would be covered by the exemption for interests arising 
    from Government salary and benefits at Sec. 2640.203(d) as proposed. 
    While OGE does not disagree that the Thrift Plan would be covered by 
    the exemption at Sec. 2640.203(d), to avoid any misunderstanding, OGE 
    has not revised the regulation in this regard in adopting it as final. 
    In particular, since the exemption at Sec. 2640.201(c)(1)(i) applies 
    specifically to the underlying holdings of the Thrift Plan, OGE would 
    prefer to retain the exemption to resolve any questions employees may 
    have on the issue.
        Another agency requested that OGE add an exemption for a separate 
    investment plan the agency maintains for its employees. A number of 
    agencies have such investment plans. The Office of Government Ethics 
    believes that it would be impractical to list all such plans, and 
    considers them covered by the exemption at Sec. 2640.203(d). In 
    response to a question from the same agency, OGE confirms that employee 
    benefit plans that meet the definition at Sec. 2640.102(c) are covered 
    by the exemption even if they are not covered by the Employee 
    Retirement Income Security Act of 1974 (ERISA). Also, OGE confirms that 
    participation in selecting trustees and investment managers does not 
    constitute selection of plan investments for purposes of 
    Sec. 2640.201(c)(1)(iii)(A). Finally, the same agency asked OGE to 
    establish a new exemption for the sponsors of defined benefit plans 
    administered by an independent trustee and guaranteed by the Pension 
    Benefit Guaranty Corporation (PBGC). The Office of Government Ethics 
    did not add a new exemption in response to this request. First, where a 
    plan sponsor has defaulted on pension payments, the PBGC may not pay 
    employees the full amount due under the pension, and the payments 
    employees do receive may be delayed, causing financial harm to the 
    beneficiaries. Under the circumstances, OGE cannot conclude 
    definitively that an employee's interest in payment of defined benefit 
    is remote and inconsequential even when the pension is guaranteed by 
    the PBGC.
    Section 2640.202  Exemptions for Interests in Securities
    De Minimis Exemptions for Interests of Employee, Spouse, and Minor 
    Children
        A total of thirteen agencies made a number of general comments 
    about the de minimis exemptions at Sec. 2640.202 (a)-(c), as proposed. 
    One agency stated that the three-tiered system of exemptions was 
    reasonable; two other agencies stated that three different de minimis 
    exemptions would create confusion and recommended that OGE eliminate at 
    least Sec. 2640.202(b). Two agencies suggested that the de minimis 
    amounts be raised. Of these, one agency emphasized that the de minimis 
    amounts should be higher for special Government employees. Five 
    agencies stated that the de minimis amounts should be lower. Of these, 
    one recommended that the exemption for party matters at 
    Sec. 2640.202(a) be lowered to $1,000; a second agency suggested that 
    OGE allow individual agencies to lower the de minimis amounts for 
    employees who serve on procurement boards; a third agency made a 
    suggestion for similar authority for regulatory agencies. A fourth 
    agency suggested that the de minimis amounts be set on a sliding scale 
    according to an employee's net worth and that the exemption for matters 
    of general applicability in Sec. 2640.202(c), as proposed, should be 
    conditioned on the employee's interest not being affected in a 
    disproportionate manner.
        Four agencies objected to the fact that de minimis amounts proposed 
    did not match the categories of value listed on the public financial 
    disclosure statement (SF 278). Two of these agencies alternatively 
    recommended that OGE revise the financial disclosure statement to 
    correspond with the de minimis amounts. A fifth agency was satisfied 
    with the de minimis amounts, but recommended that the SF 278 form be 
    revised to add a box that employees could check indicating whether a 
    particular holding was in excess of $5,000, $25,000, or $50,000. In 
    general, the agencies that commented on the lack of uniformity between 
    the SF 278 and the de minimis amounts proposed expressed concern about 
    having to contact employees about the value of their holdings before 
    certifying the disclosure form. In addition, one Office of Inspector 
    General stated that the de minimis exemptions would interfere with the 
    ability to conduct investigations because investigators would have to 
    contact an employee early in the investigatory process to determine the 
    value of his holdings before deciding to continue an investigation.
        The Office of Government Ethics has carefully considered these 
    comments, and has decided to make one change to the three basic de 
    minimis exemptions as proposed at Sec. 2640.202 (a)-(c). Section 
    2640.202(b), as proposed, would have established an exemption for 
    employees participating in a particular matter involving specific 
    parties where the financial interest arises from the ownership of 
    securities issued by an entity that is not a party to the matter. After 
    evaluating the comments concerning the overall complexity of the 
    regulation, as well as comments on proposed Sec. 2640.202(b) 
    specifically, the Office of Government Ethics has deleted the separate 
    exemption proposed for disqualifying financial interests arising from 
    ownership of securities issued by nonparties. Accordingly, this final 
    regulation contains two basic de minimis exemptions: A $5,000 de 
    minimis exemption (at Sec. 2640.202(a)) for
    
    [[Page 66835]]
    
    interests arising from the ownership of securities issued by an entity 
    that is affected by a particular party matter; and a $25,000/$50,000 de 
    minimis exemption (at Sec. 2640.202(b)) for interests arising from the 
    ownership of securities issued by an entity affected by a particular 
    matter of general applicability. The latter exemption also contains a 
    provision exempting interests arising from the ownership of no more 
    than $50,000 of long-term Federal Government securities, discussed 
    below.
        The elimination of proposed Sec. 2640.202(b) will address concerns 
    that the rule's complexity prevents employees from determining when a 
    particular exemption applies. It also avoids the problem of forcing 
    agencies to determine when a specific entity becomes a party to a 
    particular matter. Interests in non-parties will be addressed in the 
    $5,000 exemption at Sec. 2640.202(a), which has been revised to extend 
    coverage to interests arising from ownership of securities issued by 
    both parties and by non-parties. As revised, the exemption applies to 
    security interests in entities that are ``affected by'' the particular 
    party matter. Of course, individual waivers under section 208 (b)(1) or 
    (b)(3) can be issued to address situations where interests in excess of 
    $5,000 are appropriate subjects for a waiver.
        The Office of Government Ethics has not adopted other agency 
    recommendations to either raise or lower the de minimis amounts from 
    the levels proposed. As the variety of the comments on this issue 
    indicates, the appropriate level of a de minimis exemption is 
    necessarily a subjective determination about which reasonable people 
    can disagree. The amounts chosen are the maximum that OGE believes can 
    reasonably be considered ``remote or inconsequential'' for any 
    executive branch employee acting in a particular matter. As noted in 
    the Preamble to the proposed rule, OGE will periodically review the 
    specific dollar thresholds as well as other aspects of this regulation.
        Moreover, although the comments indicate there is no consensus on 
    the amounts that would be appropriate, or to whom the exemptions should 
    apply, they demonstrate the need for uniform exemptions for all 
    executive branch employees. Accordingly, in this final rule OGE has not 
    revised the regulation as proposed to establish different exemption 
    amounts based on the responsibilities of employees or on a particular 
    agency's mission. In the absence of uniformity, reliance on an 
    exemption by an employee might suggest that the employee is acting less 
    impartially than another employee for whom the exemption is not 
    available. In addition, establishing different exemption amounts for 
    different groups of employees would only add to the rule's complexity.
        The Office of Government Ethics did not agree with the suggestion 
    that the exemption amounts should be higher for special Government 
    employees (SGE). Like regular employees, special Government employees 
    have a responsibility to act in the public's interest and to ensure 
    that their participation in official Government matters is not 
    influenced by their personal financial interests. Interests arising 
    from the ownership of securities are likely to present as much of a 
    conflict for SGEs as for regular employees. Moreover, individual 
    waivers may be issued for SGEs serving on advisory committees under 
    section 208(b)(3) or for any SGE under section 208(b)(1).
        While OGE agrees it is unfortunate that the exemption amounts and 
    the categories of value on the financial disclosure statement (SF 278) 
    are not consistent, OGE does not have the authority to change the 
    categories on the form, which are required by statute, to match the 
    values of the exemption. Although the basic exemption amount at 
    Sec. 2640.202(a) could have been set to conform to a SF 278 category of 
    value, the exemption would have to have been set at either $1,000 or 
    $15,000. In OGE's view, the former amount is too low to be of much use 
    to employees utilizing the exemptions, while the latter amount is too 
    high to be considered ``remote or inconsequential'' in every case. 
    Additionally, since the holdings of an employee, his spouse and child 
    must be aggregated to determine whether the exemptions apply, it would 
    be virtually impossible to have reconciled the de minimis amounts to 
    the SF 278 categories. The same problem would arise in connection with 
    the exemption at Sec. 2640.202(b), as renumbered, because the 
    employee's holdings in all affected entities must be aggregated to 
    determine if the exemption applies. After the exemption rule has been 
    in effect for long enough to permit agencies and employees to gain 
    experience in applying the rule, OGE intends to evaluate any problems 
    that might interfere with the efficient application of the rule. If 
    warranted, at that time OGE will consider whether it should seek 
    legislation to reconcile the financial reporting system and the 
    exemptions.
        Two agencies recommended that the exemptions proposed in 
    Sec. 2640.202 (a) and (b), as renumbered, be expanded to apply to not 
    only the interests of the employee, his spouse and minor children, but 
    to those of all persons listed in section 208 (such as the employee's 
    general partner and person with whom he has an arrangement for future 
    employment). The Office of Government Ethics has not adopted this 
    recommendation. Other provisions in the rule provide broader exemptions 
    for the interests of some of these persons (for example, Sec. 2640.202 
    (c), (d) and (e)). It would complicate the rule to duplicate coverage 
    for these persons in Sec. 2640.202 (a) and (b), as renumbered, since 
    employees would have to decide which, or how many, exemptions apply to 
    the interests of those persons.
        One agency complained that the rule as proposed did not provide 
    clear guidance about what an employee should do when the value of his 
    holdings rises above the de minimis amounts during the course of his 
    participation in a particular matter. The agency suggested that an 
    employee should be required to value his holdings once a year, and then 
    have 45 days to take steps to resolve any disqualifying financial 
    interest before having to disqualify himself from participation in 
    particular matters. The Office of Government Ethics has not revised the 
    rule to address this comment. Example 3 following Sec. 2640.202(a) 
    describes an employee's obligation once he knows the value of his 
    holdings has risen above the de minimis levels.
        Under Secs. 2640.102(r) and 2640.202 of the rule, a mutual fund, 
    including a sector mutual fund, is considered a publicly traded 
    security for purposes of the various de minimis exemptions. The 
    Preamble of the proposed rule indicated that for purposes of 
    determining whether a de minimis exemption applies in the case of a 
    mutual fund, the value of the employee's interest would be the value of 
    his interest in the fund as a whole, not the pro rata value of any 
    underlying holding of the fund. The Office of Government Ethics 
    proposed this valuation method primarily because the holdings of most 
    mutual funds change frequently and it would be infeasible for an 
    employee to calculate the value of an affected holding at the point he 
    might act in a particular matter. And moreover, in many cases an 
    employee's interest in the sector as a whole is really a more accurate 
    measure of his interest in the particular matter. However, three 
    agencies objected to this proposed valuation method and stated that the 
    value of the underlying holding should determine whether the de minimis 
    amount is exceeded. The agencies pointed out that an employee,
    
    [[Page 66836]]
    
    consistent with the de minimis exemption at Sec. 2640.202(a), could 
    participate in a party matter affecting a company in which he owns 
    $5,000 worth of stock, but would be barred from participating in the 
    same matter if he owned $6,000 in a sector mutual fund whose 
    proportionate holding in the same company is $50. The Office of 
    Government Ethics agrees that the value of the affected underlying 
    holding may sometimes be a more precise measure of whether an 
    employee's financial interest is remote or inconsequential within the 
    meaning of section 208, but remains concerned that an employee cannot 
    accurately determine the value of an underlying holding at the time of 
    his proposed participation because mutual fund assets are bought and 
    sold so frequently. Moreover, interpreting the exemption to apply to 
    the value of the fund as a whole is not inherently unfair since, in 
    many cases, an employee's interest in the entire sector may be a more 
    accurate measure of the value of his interest in the matter. 
    Additionally, OGE is sensitive to concerns expressed by other 
    commenters about devising exemptions that are unduly complicated. On 
    balance, OGE believes the rule will be fairer and easier to implement 
    if the $5,000 exemption applies to the value of the sector fund as a 
    whole. Of course, individual waivers under section 208(b)(1) may be 
    issued to employees whose mutual fund is in excess of $5,000. And, if 
    agencies report difficulties in implementing the de minimis provisions 
    as they apply to sector mutual funds, OGE will reconsider the issue.
    Interests in Federal Government Securities
        One agency questioned why there should be any distinction between 
    long- and short-term Government securities for purposes of the 
    exemptions. The Office of Government Ethics, in consultation with the 
    Department of Justice, has concluded that employees whose duties 
    concern setting interest rates or formulating monetary policy may have 
    the potential for more significant gains or losses arising from the 
    ownership of long-term Government securities. Therefore, the exemption 
    for those securities is narrower than the exemption for short-term 
    Government securities. At the request of another agency, OGE expanded 
    the exemption at Sec. 2640.202(b), as renumbered, for long-term Federal 
    Government securities to $50,000. As requested by the same agency, OGE 
    added an exemption for U.S. Savings bonds at Sec. 2640.202(c), as 
    renumbered. Corresponding changes to the definition of ``long-term 
    Federal Government security'' have been added to Sec. 2640.102(i), as 
    renumbered, and a definition of ``U.S. Savings bond'' has been added at 
    Sec. 2640.102(v). Although interests in these Federal Government 
    securities do not create a disqualifying financial interest for most 
    employees, these exemptions will be available for those employees of 
    the Department of the Treasury, the Federal Reserve, and similar other 
    agencies where duties may create a disqualifying financial interest.
    Interests of Tax Exempt Organizations
        Four agencies commented on the exemption for the interests of tax 
    exempt organizations in proposed Sec. 2640.202(e), now renumbered as 
    Sec. 2640.202(d). One agency stated that the exemption should apply to 
    the securities holdings of all companies, whether or not they are 
    nonprofit; another thought it should apply to the interests of 
    nonprofits that are tax exempt under other subparts of 26 U.S.C. 
    501(c), in particular section 501(c)(4). The Office of Government 
    Ethics originally devised this exemption in response to requests from 
    agencies who stated that they routinely issue individual waivers to 
    employees serving on the boards of various nonprofits, particularly 
    colleges and universities. Interests arising from the holdings of other 
    types of companies the employee serves as officer, director, trustee or 
    employee are better handled on an individual basis through a waiver 
    under section 208 (b)(1) or (b)(3). However, OGE has revised the 
    regulation to include nonprofit organizations that are tax exempt under 
    either 26 U.S.C. 501 (c)(3) or (c)(4).
        Two agencies objected to limiting the exemption proposed, at 
    renumbered Sec. 2640.202(d), to situations where the affected holdings 
    amount to no more than 20% of the organization's portfolio. One of the 
    agencies pointed out that an employee would have to be recalculating 
    percentages during the course of his participation in a matter to 
    ensure that the 20% limitation was not exceeded. The Office of 
    Government Ethics agrees, and has accordingly revised the regulation in 
    adopting it in final form.
        One agency suggested that OGE delete the proposed requirement that 
    an employee must be an unpaid officer, director, or trustee for the 
    exemption to apply. OGE did not adopt this recommendation because it 
    believes such situations should be handled on an individual basis under 
    the waiver provisions at section 208 (b)(1) or (b)(3). However, OGE 
    wishes to clarify that receipt of travel reimbursement (or 
    reimbursement of other similar types of expenses) from an organization 
    would not be considered a form of pay for purposes of this exemption. 
    Finally, OGE disagrees with an agency which suggested that the 
    exemption is an unnecessary change from past OGE practice in handling 
    interests of organizations an employee serves as officer, director, or 
    trustee. To the extent that OGE has not required recusal or individual 
    waivers for such an employee, it has assumed that the employee had no 
    knowledge of the organization's investments.
    Interests of General Partners
        The Office of Government Ethics did not adopt one agency 
    recommendation to broaden the proposed exemption at Sec. 2640.202(e), 
    as renumbered, to include any interest of an employee's general partner 
    as long as it is not related to the partnership. That approach would 
    amount to eliminating the interests of general partners from coverage 
    under section 208, which is a legislative function. For similar 
    reasons, OGE also did not adopt an agency recommendation to exempt all 
    the interests of an employee's general partner in cases where the 
    employee is a limited partner. Finally, OGE does not agree with one 
    agency's contention that section 208 has no applicability to an 
    employee's general partners if the employee is only a limited partner. 
    It also does not agree with the suggestion of that agency, and of one 
    other agency, that an exemption should apply to all the interests of an 
    employee's general partner where the employee is a limited partner in a 
    partnership with more 15 limited partners. The Office of Government 
    Ethics cannot say with any certainty that all such interests are 
    ``remote or inconsequential'' enough to warrant automatic exemptions 
    for all employees under this regulation.
    Section 2640.203  Miscellaneous Exemptions
    Hiring Decisions
        Four agencies commented on proposed Sec. 2640.203(a). Two agencies 
    stated that Sec. 2640.203(a) is unnecessary and confusing and should be 
    omitted from the final rule. The Office of Government Ethics disagrees. 
    The provision was included at the request of an agency that is 
    routinely involved in hiring new employees with significant financial 
    interests in corporations. Hiring in some of these cases significantly 
    impacts the financial interests of the former private sector employer 
    and the exemption will provide those employees involved in
    
    [[Page 66837]]
    
    the hiring with assurance that section 208 will not be violated.
        One agency suggested that OGE define the term ``hiring decisions.'' 
    The Office of Government Ethics decided not to define the term so that 
    the provision, given the common understanding of the term, will be 
    broad enough to cover various stages of the hiring process. One agency 
    recommended that OGE define the term ``vested pension plan'' or delete 
    the word ``vested.'' In order to simplify the provision, the Office of 
    Government Ethics has decided to delete the word ``vested.''
    Employees on Leave From Institutions of Higher Education
        Two comments were received regarding Sec. 2640.203(b) as proposed. 
    One agency commented that the exemption will be very helpful to 
    agencies that recruit a large number of noncareer appointees from the 
    private sector. Another agency stated that many employees will benefit 
    from the application of the exemption. Both agencies recommended that 
    Sec. 2640.203(b) be broadened. One recommended that the exemption 
    include nonprofit employers such as medical institutions and other 
    nonprofit entities. The other agency requested that the exemption also 
    include State and local governmental entities. The Office of Government 
    Ethics has not changed this provision. The exemption was proposed for 
    inclusion primarily at the request of agencies who hire large numbers 
    of persons whose principal employers are universities, which commonly 
    grant leaves of absence. There is no indication that agencies must 
    routinely address conflicts of interest questions involving employees 
    who are on leaves of absence from other nonprofit entities or from 
    State or local governments.
    Multi-Campus Institutions of Higher Education
        One agency commented on proposed Sec. 2640.203(c). No changes have 
    been made in the regulation to address the agency's concern that the 
    exemption include participation in matters affecting the State that 
    operates the institution. In a formal advisory opinion (82 OGE 1, 
    February 12, 1982), as published in ``The Informal Advisory Letters and 
    Memoranda and Formal Opinions of the United States Office of Government 
    Ethics'' 851 (1979-1988), OGE stated that the interests of a university 
    will not be imputed to the State that operates the institution. 
    Accordingly, no exemption would be necessary. The same agency commented 
    on the note which followed Sec. 2640.203(c) as proposed. The agency 
    questioned why it would be necessary to determine whether State 
    institutions constitute a State ``system.'' To further simplify the 
    rule, OGE has decided to eliminate the note.
    Financial Interests Arising From Federal Government Employment or From 
    Social Security or Veterans' Benefits
        Thirteen comments were received concerning recodified and 
    renumbered Sec. 2640.203(d), which was published as an interim rule at 
    Sec. 2640.101 in the Federal Register on August 28, 1995 (60 FR 44706, 
    44709). One general comment, made by four agencies, expressed concern 
    regarding the decision to treat financial interests that arise from 
    Government salary and employment as disqualifying under 18 U.S.C. 
    208(a). The Office of Government Ethics understands these concerns. 
    However, for reasons discussed in the Preamble of the interim rule, OGE 
    has decided not to change the position adopted by this Office in 
    consultation with the Department of Justice. Most of the potential 
    adverse effects of treating these interests as disqualifying are 
    mitigated by this regulation, which would exempt most of the financial 
    interests from the disqualification provision of section 208(a).
        One agency recommended that OGE emphasize that Sec. 2640.203(d) 
    does not preclude an employee from seeking improvements in his working 
    conditions merely because a spouse's working conditions might also 
    benefit from the change. Under Sec. 2640.203(d), if the request is made 
    on his behalf, rather than on behalf of his spouse, an employee may 
    request that his working environment be enhanced even if the request 
    results in an improved working environment for his spouse.
        Three agencies commented on the phrase ``determinations that 
    individually or specially affect their Government salary and benefits. 
    The first agency commented that the phrase did not clarify the scope of 
    the exemption. The Office of Government Ethics has not modified the 
    regulation because the ten examples which follow the exemption help 
    illustrate the scope of the exemption. This agency also questioned 
    whether the exemption would permit an office director and her top 
    management to decide what positions will be subject to a reduction in 
    force without requiring them to obtain individual waivers. Example 10 
    following the exemption addresses a very similar issue.
        A second agency questioned whether the adverbs ``individually or 
    specially'' would modify both ``relate to'' and ``affect.'' 
    ``Individually or specially'' modify both phrases. The third agency 
    requested that the terms ``individually'' and ``specially'' be defined. 
    The Office of Government Ethics believes that the examples which follow 
    Sec. 2640.203(d) illustrate the meaning of the terms ``individually'' 
    and ``specially.'' Of course, in cases where an agency is uncertain 
    whether an exemption applies, it is always free to issue an individual 
    waiver under section 208 (b)(1) or (b)(3).
        The third agency also recommended that the phrase ``make 
    determinations'' be defined. Through the examples following 
    Sec. 2640.203(d), the Office of Government Ethics has illustrated what 
    constitutes a determination. Generally, a determination involves an 
    official Government decision whether intermediate or final.
        Six agencies commented on Example 3 following Sec. 2640.203(d). 
    Generally, these agencies indicated that some high-level officials and 
    senior personnel do not have a ``supervising official'' to approve 
    travel authorizations or vouchers. To accommodate agency concerns, OGE 
    inserted the following clause into the final sentence of Example 3 as 
    adopted in this final rule: ``unless he has been delegated, in advance, 
    authority to make such approvals in accordance with agency policy.'' 
    Consequently, an employee may approve his own travel authorization or 
    payment of his own travel expenses if, in advance, such authority has 
    been delegated to him according to agency policy. For purposes of this 
    exemption, an advance delegation of this type will be deemed to be a 
    determination by the employee's agency rather than a determination by 
    the employee. Another agency questioned whether the approval of an 
    employee's travel voucher by both the ``approving official'' and the 
    ``certifying official'' are ``determinations'' for purposes of 
    Sec. 2640.203(d). Both certification and approval are determinations 
    within the scope of the exemption found at Sec. 2640.203(d) of this 
    final rule.
        One agency stated that it was not clear that the situations 
    described in Examples 4 and 6 following Sec. 2640.203(d) present 
    ``particular matters.'' The examples concern all Federal employees or a 
    very large group of Federal employees. The Office of Government Ethics 
    believes that the class of all Federal employees or a large group of 
    Federal employees is a ``discrete and identifiable class of persons'' 
    within the meaning of a ``particular matter'' found in this regulation 
    at Sec. 2640.103(a)(1).
    
    [[Page 66838]]
    
        One agency commented on Example 5 following Sec. 2640.203(d). The 
    agency argued that drafting a regulation that will provide expanded 
    hospital benefits for veterans is not a ``particular matter'' and would 
    not require an exemption. The Office of Government Ethics disagrees 
    with this argument. According to Sec. 2640.103(a)(1), a particular 
    matter includes `` * * * matters that involve deliberation, decision, 
    or action that is focused upon the interests of specific persons, or a 
    discrete and identifiable class of persons.'' Veterans are a discrete 
    and identifiable class of persons; therefore, a regulation dealing with 
    hospital benefits for veterans is a particular matter.
        Another agency did not understand the distinction, if any, between 
    Example 7 and Example 8 which follow Sec. 2640.203(d). Example 7 allows 
    an employee to participate in GSA's evaluation of the feasibility of 
    privatizing the Federal Supply Service, even though the employee's own 
    position would be eliminated if the decision to privatize were made. 
    The employee may participate in the evaluation because according to the 
    facts as described, he is merely studying whether it is feasible to 
    privatize the Federal Supply Service. Ultimately, GSA may decide not to 
    privatize. At this point, it cannot be said that the matter will have a 
    direct and predictable effect on the employee's financial interest, and 
    therefore, no exemption or waiver is needed to allow the employee to 
    participate. Moreover, even if the employee was involved in the 
    implementation of a decision to privatize the Federal Supply Service, 
    the employee would not be making a determination that individually or 
    specially affects his own Government salary. In Example 8, the employee 
    may not participate in the implementation of the privatization plan to 
    eliminate the employee's Federal position and create a new position in 
    a private organization because the employee would be making 
    determinations that affect interests other than those that arise from 
    Government employment. The employee's interest in a position in the 
    newly privatized corporation is not an interest that ``arises from 
    Federal Government employment or from Social Security or veterans' 
    benefits.''
        One agency suggested that recodified Sec. 2640.203(d) be broadened 
    to cover the salary and benefits of employees of the Federal Reserve 
    banks. The Office of Government Ethics revised the provision 
    accordingly.
        Three comments were received regarding privatization concerns. One 
    agency recommended that the Office of Government Ethics assume a 
    leadership role to facilitate privatization efforts through the 
    development of solutions to potential ethics impediments to 
    privatization. The Office of Government Ethics has addressed some 
    privatization issues in the interim rule published in the Federal 
    Register on August 28, 1995 (60 FR 44706). With some limitations, the 
    exemption permits an employee to engage in many of the activities 
    associated with privatization. Furthermore, OGE provides practical 
    advice to agency officials involved in privatization. Another agency's 
    comment requested that OGE adopt an exemption in the cases of salaries 
    and benefits of employees of any Federal agency engaged in planning the 
    transfer of all its assets, programs and employees to a successor 
    nonprofit corporation in either the public or the private sector. A 
    comprehensive regulatory exemption is not appropriate in such cases. 
    The Office of Government Ethics cannot make a blanket determination 
    that in all such situations the financial interests of all employees 
    are too remote or too inconsequential to affect the integrity of their 
    services. Therefore, no exemption has been adopted; however, the agency 
    may issue individual waivers under section 208(b)(1) or (b)(3) where 
    applicable to facilitate the transition to a nonprofit corporation. 
    Finally, one person questioned whether Sec. 2640.203(d) applies to 
    union officials involved in privatization negotiations. The exemptions 
    found at part 2640 apply to union officials to the same extent to which 
    they apply to all other executive branch employees.
        One agency questioned why interests arising from Social Security 
    and veterans' benefits were exempted under Sec. 2640.203(d), but 
    financial interests arising from participation in programs such as 
    Medicare, Medicaid, Food Stamps, Aid to Families with Dependent 
    Children and Federal student loans were not exempted. Because interests 
    in those programs are not derived from the individual's status as a 
    Government employee, the exemption at Sec. 2640.203(d) is not 
    applicable.
    Special Government Employees Serving on Advisory Committees
        Four agencies responded positively to Sec. 2640.203(g) of the 
    proposed rule indicating that the exemption will make it easier for 
    agencies to recruit special Government employees (SGE). One agency 
    recommended that the exemption be expanded to cover investment 
    interests in the special Government employee's area of expertise. The 
    agency asserted that such interests do not pose any greater threat to 
    the integrity of the SGE's services than employment interests. The 
    Office of Government Ethics has not expanded the exemption to cover 
    investment interests in a SGE's area of expertise because exemptions 
    for certain investment interests are already available under 
    Sec. 2640.202. If the exemptions under Sec. 2640.202 are not 
    sufficient, then the employee may request a waiver under 18 U.S.C. 
    208(b)(3).
        Another agency suggested that Sec. 2640.203(g) apply to all non-
    Federal employers of the SGE, not just the SGE's ``principal 
    employer,'' since many advisory committee members act as consultants to 
    various different private sector entities. The Office of Government 
    Ethics believes the exemption should apply only where the employee has 
    an employee/employer relationship with the outside entity. Employees 
    serving on advisory committees often are chosen because of their 
    expertise in a certain field or because of their affiliation with 
    certain interest groups. Because advisory committee meetings are open, 
    employment interests are readily apparent to the public. Members and 
    their employment affiliations are typically identified publicly. On the 
    other hand, an SGE's bias because of an affiliation as a consultant may 
    not be so evident and since such relationships may not be well known to 
    the public. Therefore, the Office of Government Ethics has not changed 
    this provision.
        Another agency recommended that the exemption cover all SGEs, not 
    just those serving on advisory committees. The Office of Government 
    Ethics disagrees with the recommendation and is not adopting it in this 
    final rule. As explained in the preamble of the proposed rule, the 
    exemption at Sec. 2640.203(g) is limited to special Government 
    employees who are on Federal advisory committees because the public's 
    interest in the integrity of advisory committee proceedings is 
    protected by the nature of the proceedings themselves. Ordinarily, no 
    one individual can control the recommendations of the committee. 
    Moreover, the public interest in the employees' integrity is protected 
    by the openness required by the Federal Advisory Committee Act, 5 
    U.S.C. app. Such safeguards are not present in the case of SGEs not 
    serving on advisory committees.
        One agency asked that OGE clarify the phrase ``special or distinct 
    effect'' used in proposed Sec. 2640.203(g). Because of the need for 
    flexibility, the Office of Government Ethics did not define the
    
    [[Page 66839]]
    
    phrase. Example 1 following Sec. 2640.203(g) explains that an SGE may 
    participate in a matter on an advisory committee even though the 
    recommendation by the advisory committee will affect his non-Federal 
    employer as part of a class. However, it is not OGE's intent that the 
    exemption apply only where the effect of the matter on members within a 
    class is identical. Normally, the matter would have a ``special or 
    distinct effect'' when its impact would be unique to the employee or 
    his employer, or where the effect would be clearly out of proportion in 
    comparison to the effect on other members of the class. Where it is 
    difficult to determine if a ``special or distinct effect'' may occur, 
    an agency has the option of issuing an individual waiver under section 
    208 (b)(1) or (b)(3).
    Directors of Federal Reserve Banks
        One agency commented on Sec. 2640.203(h) of the proposed rule and 
    questioned whether use of the exemption would preclude the use of other 
    exemptions such as those for de minimis investments. The exemptions 
    found in this final part 2640 regulation are intended to be used where 
    applicable in particular situations with no restriction on the number 
    of exemptions utilized by an employee. Therefore, application of one 
    exemption does not preclude the application of another exemption.
    Medical Products
        One agency commented on Sec. 2640.203(i) as proposed. The agency 
    stated that Sec. 2640.203(i)(1) should not be limited to matters 
    involving the ``approval or classification'' of medical products, but 
    should be broadened to cover ``Federal advisory committee matters 
    concerning medical products * * * .'' The agency recommended 
    eliminating the distinction between medical products and medical 
    devices because in the industry ``medical products'' is a generic term 
    used to describe all products and devices intended for therapeutic or 
    diagnostic purposes. The Office of Government Ethics has adopted both 
    recommendations in this final rule. The agency requested that the 
    language of Sec. 2640.203(i)(1) include ``use by or sale to its 
    patients'' to reflect actual practice where hospitals have a pharmacy 
    from which patients buy prescription products for use on an outpatient 
    basis. The agency also recommended that proposed Sec. 2640.203(i)(2) be 
    changed to cover ``the use or prescription of medical products for 
    patients.'' Based on the commenting agency's expertise, OGE has revised 
    Sec. 2640.203(i) to accommodate the agency's recommendations. The 
    agency also requested that it should be noted that intellectual 
    property rights are not covered by this exemption. The Office of 
    Government Ethics has not incorporated this suggestion. To simplify the 
    regulation, OGE has decided to describe only what interests are covered 
    by the exemptions rather than what interests are not included.
        The same agency recommended that proposed Sec. 2640.203(i) should 
    cover SGEs who are not serving on a Federal advisory committee, 
    provided that the SGEs work no more than 60 days in any 365 day period 
    and their services are advisory only. The safeguards of the Federal 
    advisory committee process, as described above, are not present in 
    situations involving SGEs not serving on advisory committees; 
    therefore, the Office of Government Ethics has not expanded the 
    exemption in the final rule.
    Representative Members of FDA Advisory Committees
        A new exemption has been added, at the request of the Food and Drug 
    Administration (FDA), at Sec. 2640.203(j) of the final rule for certain 
    nonvoting representative members of technical advisory committees 
    established by the FDA. The provision exempts any disqualifying 
    financial interest the nonvoting member has in the class that he 
    represents on the committee. The exemption continues, in part, an 
    existing FDA exemption promulgated in 1976 when individual agencies had 
    the authority to issue old section 208(b)(2) regulatory waivers.
        Nonvoting members of FDA technical advisory committees may be 
    appointed pursuant to one of several authorities, including 21 U.S.C. 
    394, 360c(b), or 360j(f)(3). Some of these statutory authorities 
    require that certain members of the committees be appointed as 
    representatives of consumer and industry groups and specify that these 
    groups have the opportunity to nominate persons to serve in a 
    representative capacity. Ordinarily, persons serving in a 
    representative capacity would not be considered employees of the 
    Government. See Office of Government Ethics (OGE) Informal Advisory 
    Letter 82x22, ``The Informal Advisory Letters and Memoranda and Formal 
    Opinions of the United States Office of Government Ethics'' 325, 329-31 
    (1979-1988).
        Nevertheless, HHS has appointed these members as special Government 
    employees because 21 U.S.C. 331(j) prohibits the FDA from disclosing 
    trade secret information to persons who are not employees of HHS, and 
    the members of these technical advisory committees need to have access 
    to certain trade secret information in order to carry out the 
    committees' activities. Therefore, in order to accomplish the work that 
    Congress intended these committees perform, the representative members 
    of these committees are appointed as special Government employees.
        As a general proposition, OGE believes that representatives are not 
    Government employees because they are not carrying out a Federal 
    function on behalf of the Government. Accordingly, in OGE's view, 
    representatives ordinarily would not be appointed as employees. Where 
    members of FDA technical advisory committees are required by statute to 
    be appointed as representatives and must have access to confidential 
    information to carry out their duties as members of the committee, 
    however, it is arguable that Congress envisioned that they would act as 
    both representatives and as employees.
        Regulations promulgated by the FDA that govern the activities of 
    these representative members contain certain limitations designed to 
    safeguard the integrity of the advisory committee proceedings. First, 
    although the members are appointed as special Government employees, 
    they are still under an obligation to represent the views of non-
    Federal industry and consumer groups, and this obligation is publicly 
    disclosed. See 21 CFR 14.84(c). And although representative members 
    participate in committee discussions, they are not permitted to vote on 
    committee recommendations. 21 CFR 14.86(a)(1). Representative members 
    are also subject to specific limitations on their participation in 
    matters directly involving their employer, as well as general 
    limitations on their advocacy. 21 CFR 14.86(c)(4)-(6). Failure to 
    adhere to these limitations may result in removal from the committee. 
    21 CFR 14.86(d). Accordingly, in view of the limited nature of their 
    services and the public expectation that they will act as 
    representatives, there appears to be little risk that appointment of 
    these representatives as special Government employees will impair the 
    advisory committee process.
        The exemption applies only to disqualifying financial interests 
    that arise from the class which the employee represents. For example, 
    an employee who represents the pharmaceutical industry may have 
    disqualifying financial interests that arise from his employment with a 
    pharmaceutical company and from ownership of stock
    
    [[Page 66840]]
    
    in the company. The employee's disqualifying financial interests 
    arising from these relationships and assets are exempt under 
    Sec. 2640.203(j). On the other hand, ownership of stock in the same 
    company by an employee who represents consumer groups does not create a 
    disqualifying financial interest in the same class which the employee 
    represents. In this case, the employee who represents consumer groups 
    would need an individual waiver under section 208(b)(1) or (b)(3) 
    before participating in advisory committee activities affecting the 
    company in which she owns stock.
    Employees of the Tennessee Valley Authority
        Section 2640.203(k) of the final rule contains a new exemption 
    applicable to employees of the Tennessee Valley Authority (TVA) who 
    participate in developing or approving power rate schedules, or other 
    similar matters, for the production of electric power within the TVA 
    service area. The provision continues an existing exemption promulgated 
    by the TVA at 18 CFR 1300.735 pursuant to its authority under 18 U.S.C. 
    208(b)(2) before the statute was amended in 1989. The exemption applies 
    only to disqualifying financial interests arising from the use of 
    electric power sold by the TVA.
    Section 2640.204  Prohibited Financial Interests
        One agency stated that 5 CFR 2635.403(b), which authorizes an 
    agency to prohibit the holding of certain financial interests in 
    individual cases, should have no applicability where a financial 
    interest is covered by a regulatory exemption. The agency noted that 
    situations arising under Sec. 2635.403(b) are not analogous to 
    situations where financial interests are prohibited under statute or 
    supplemental regulation. The Office of Government Ethics did not make 
    the recommended modification. Deleting the reference to 5 CFR 
    2635.403(b) would interfere with an agency's ability to make 
    independent determinations about substantial conflicts. However, 
    Sec. 2640.204 has been revised to clarify that none of the exemptions 
    apply to financial interests ``held or acquired by the employee, his 
    spouse, or minor child in violation of a statute or agency supplemental 
    regulation * * *.'' This clarifying revision is necessary to address 
    the fact that a few agencies have supplemental regulations which 
    prohibit spouses and minor children from holding or acquiring certain 
    interests.
    Section 2640.205  Employee Responsibility
        One agency requested that the final sentence in this section as 
    proposed, which referred in part to an employee's uncertainty about 
    whether a waiver is applicable, should be changed to reference an 
    ``exemption or waiver.'' The Office of Government Ethics has corrected 
    that provision in the final rule to state, ``An employee who is unsure 
    whether an exemption is applicable * * *.''
        Two agencies made comments regarding employee reliance on agency 
    advice. One agency thought it would be useful to encourage employees to 
    rely on specific advice of their organization's ethics officials. 
    Another agency recommended that OGE add a ``safe harbor'' provision 
    under which the employee would not be subject to criminal prosecution 
    or disciplinary action when relying in good faith on the advice of an 
    agency ethics official with respect to the applicability of the 
    exemptions. The Office of Government Ethics did not add a ``safe 
    harbor'' provision. The correct standard concerning reliance on the 
    advice of ethics officials is stated at 5 CFR 2635.107(b). That 
    provision states that ``good faith reliance on the advice of an agency 
    ethics official is a factor that may be taken into account by the 
    Department of Justice in the selection of cases for prosecution.''
        One agency stated that it supports the concept that employees have 
    to take responsibility for determining whether an exemption applies in 
    a particular case. A second agency, however, expressed concern that the 
    regulation as proposed would not accomplish its stated purpose of 
    lessening the burden on agency ethics officials since employees may not 
    rely on a provision unless the interest is specifically exempt and 
    employees will be forced to consult with an ethics official prior to 
    taking action. The Office of Government Ethics understands this 
    concern, but believes that most employees will be able to apply the 
    basic exemption provisions once they take effect. In addition, because 
    this regulation implements a criminal statute, it should be 
    sufficiently precise so that employees have adequate notice of when 
    they may act without fear of violating section 208. Naturally, when an 
    employee is in doubt as to the application of a particular provision, 
    he will have to consult with an ethics official. However, as addressed 
    earlier in the Summary of Contents, OGE has attempted to make the 
    regulations less complex by simplifying language and deleting some 
    exemptions. These modifications should make the regulation somewhat 
    easier for employees to understand and apply.
        One agency complained about the burden on employees in complying 
    with the regulation to the extent that they would have to obtain 
    information about their investments to determine whether they meet with 
    conditions set forth in the exemptions. The Office of Government Ethics 
    does not believe this should be an onerous task. Most employees receive 
    prospectuses and periodic updates about their investments. If they did 
    not keep these materials, they can obtain information by calling the 
    manager of the fund, trust or plan.
        The same agency suggested the creation of a Governmentwide database 
    listing investments (e.g., nonsector mutual funds and certain pensions) 
    that do not create conflicts of interests and that could be updated 
    quarterly and shared by all agencies and employees as a means of 
    ensuring compliance. The Office of Government Ethics does not believe 
    this would be a practical use of resources or staff. The number of 
    investments that could be included would be so large that it would be 
    nearly impossible to identify them all with any precision. Inevitably, 
    some investments would be omitted, and the system would prove to be 
    unreliable.
        One agency suggested that OGE provide training resources for 
    employees and ethics officials. The Office of Government Ethics 
    anticipates developing training resources and materials concerning the 
    new regulation.
    Section 2640.206  Existing Agency Exemptions
        An agency suggested that the regulation include a grandfather 
    clause for those employees who currently have exempted interests under 
    individual agency regulations, allowing the employee to continue to 
    hold that exempted interest as long as the employee maintains the same 
    duties. The Office of Government Ethics does not agree that a 
    grandfather clause would be desirable. A grandfather clause would 
    result in a complicated scheme for agencies to administer. Under such 
    system, some employees would function under section 208(b)(2) agency 
    exemptions in existence prior to these regulations, while others would 
    function under the new exemptions. If an agency needs to continue a 
    specific exemption not covered under these regulations, it should 
    submit one to OGE for consideration. Alternatively, an agency can 
    consider granting waivers on an individual basis under section
    
    [[Page 66841]]
    
    208(b)(1) to employees who have exemptions under current agency rules.
    
    Subpart C--Individual Waivers
    
    Section 2640.301  Waivers Issued Pursuant to 18 U.S.C. 208(b)(1)
        One agency commented that subpart C of the part 2640 regulation as 
    proposed should be deleted in its entirety, as it is duplicative and 
    unnecessary since individual waivers are covered at 5 CFR 
    2635.402(d)(2). The Office of Government Ethics has not adopted this 
    suggestion in this final rule. These new regulations contain more 
    detailed requirements than those described in Sec. 2635.402(d)(2), as 
    well as a list of factors an agency may use in determining whether a 
    disqualifying financial interest is sufficiently substantial to be 
    deemed likely to affect the integrity of the employee's services to the 
    Government.
        A second agency responded with two observations. First, the agency 
    assumed that describing the broad scope of duties encompassed by an 
    employee's official duties will be sufficient to meet the requirement 
    under Sec. 2640.301(a)(3). Second, it stated that an appointing 
    authority has discretion, but is not required to issue a waiver even if 
    all of the enumerated requirements are met. The Office of Government 
    Ethics agrees with the commenter on both points and has retained 
    subpart C in its entirety in this final rule.
        Another agency thought it would be helpful to add to proposed 
    Sec. 2640.301(b) another factor such as ``availability at the location 
    of other persons qualified to perform the service in a timely 
    fashion,'' in order to assist agencies that have small posts abroad 
    where no one else can perform the employee's tasks. The Office of 
    Government Ethics did not add this factor because consideration of such 
    circumstances is implicit in the factor described at 
    Sec. 2640.301(b)(b)(6)(ii).
    Section 2640.304  Public Availability of Agency Waivers
        One agency requested that OGE add a requirement that advisory 
    committee members file public financial disclosure statements or, 
    alternatively, that OGE seek appropriate legislation modifying section 
    107(a)(2) of the Ethics in Government Act to require agencies to 
    disclose publicly the identity of an individual's principal employment, 
    positions held and contractual relationships, and investment interests 
    that may be relevant to the purposes and functions of the advisory 
    committee. This request is outside the scope of this regulation, which 
    deals principally with exemptions from section 208.
    
    III. Existing Agency Exemptions
    
        As of the effective date of this regulation, regulatory exemptions 
    issued by individual agencies under the authority of 18 U.S.C. 
    208(b)(2), as in effect prior to November 30, 1989, will no longer be 
    effective.
    
    IV. Matters of Regulatory Procedure
    
    Executive Order 12866
    
        In promulgating this final regulation, the Office of Government 
    Ethics has adhered to the regulatory philosophy and the applicable 
    principles of regulation set forth in section 1 of Executive Order 
    12866, Regulatory Review and Planning. This regulation has also been 
    reviewed by the Office of Management and Budget under that Executive 
    order.
    
    Regulatory Flexibility Act
    
        As Director of the Office of Government Ethics, I certify under the 
    Regulatory Flexibility Act (5 U.S.C. chapter 6) that this final 
    regulation will not have a significant impact on a substantial number 
    of small entities because it primarily affects Federal executive branch 
    employees.
    
    Paperwork Reduction Act
    
        The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply 
    because this final regulation does not contain information collection 
    requirements that require the approval of the Office of Management and 
    Budget.
    
    List of Subjects in 5 CFR Part 2640
    
        Conflict of interests, Government employees.
    
        Approved: September 26, 1996.
    Stephen D. Potts,
    Director, Office of Government Ethics.
    
        Accordingly, for the reasons set forth in the preamble, the Office 
    of Government Ethics is amending title 5, chapter XVI, subchapter B of 
    the Code of Federal Regulations by revising part 2640 to read as 
    follows:
    
    PART 2640--INTERPRETATION, EXEMPTIONS AND WAIVER GUIDANCE 
    CONCERNING 18 U.S.C. 208 (ACTS AFFECTING A PERSONAL FINANCIAL 
    INTEREST)
    
    Subpart A--General Provisions
    
    Sec.
    2640.101  Purpose.
    2640.102  Definitions.
    2640.103  Prohibition.
    
    Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)
    
    2640.201  Exemptions for interests in mutual funds, unit investment 
    trusts, and employee benefit plans.
    2640.202  Exemptions for interests in securities.
    2640.203  Miscellaneous exemptions.
    2640.204  Prohibited financial interests.
    2640.205  Employee responsibility.
    2640.206  Existing agency exemptions.
    
    Subpart C--Individual Waivers
    
    2640.301  Waivers issued pursuant to 18 U.S.C. 208(b)(1).
    2640.302  Waivers issued pursuant to 18 U.S.C. 208(b)(3).
    2640.303  Consultation and notification regarding waivers.
    2640.304  Public availability of agency waivers.
    
        Authority: 5 U.S.C. App. (Ethics in Government Act of 1978); 18 
    U.S.C. 208; E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 215, as 
    modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 Comp., p. 306.
    
    Subpart A--General Provisions
    
    
    Sec. 2640.101  Purpose.
    
        18 U.S.C. 208(a) prohibits an officer or employee of the executive 
    branch, of any independent agency of the United States, of the District 
    of Columbia, or Federal Reserve bank director, officer, or employee, or 
    any special Government employee from participating in an official 
    capacity in particular matters in which he has a personal financial 
    interest, or in which certain persons or organizations with which he is 
    affiliated have a financial interest. The statute is intended to 
    prevent an employee from allowing personal interests to affect his 
    official actions, and to protect governmental processes from actual or 
    apparent conflicts of interests. However, in certain cases, the nature 
    and size of the financial interest and the nature of the matter in 
    which the employee would act are unlikely to affect an employee's 
    official actions. Accordingly, the statute permits waivers of the 
    disqualification provision in certain cases, either on an individual 
    basis or pursuant to general regulation. Section 208(b)(2) provides 
    that the Director of the Office of Government Ethics may, by 
    regulation, exempt from the general prohibition, financial interests 
    which are too remote or too inconsequential to affect the integrity of 
    the services of the employees to which the prohibition applies. The 
    regulations in this part describe those financial interests. This part 
    also provides guidance to agencies on the factors to consider when 
    issuing individual waivers under 18 U.S.C. 208 (b)(1) or (b)(3), and 
    provides an interpretation of 18 U.S.C. 208(a).
    
    [[Page 66842]]
    
    Sec. 2640.102  Definitions.
    
        For purposes of this part:
        (a) Diversified means that the fund, trust or plan does not have a 
    stated policy of concentrating its investments in any industry, 
    business, single country other than the United States, or bonds of a 
    single State within the United States and, in the case of an employee 
    benefit plan, means that the plan's trustee has a written policy of 
    varying plan investments.
    
        Note to paragraph (a): A mutual fund is diversified for purposes 
    of this part if it does not have a policy of concentrating its 
    investments in an industry, business, country other than the United 
    States, or single State within the United States. Whether a mutual 
    fund meets this standard may be determined by checking the fund's 
    prospectus or by calling a broker or the manager of the fund. An 
    employee benefit plan is diversified if the plan manager has a 
    written policy of varying assets. This policy might be found in 
    materials describing the plan or may be obtained in a written 
    statement from the plan manager. It is important to note that a 
    mutual fund or employee benefit plan that is diversified for 
    purposes of this part may not necessarily be an excepted investment 
    fund (EIF) for purposes of reporting financial interests pursuant to 
    5 CFR 2634.310(c). In some cases, an employee may have to report the 
    underlying assets of a fund or plan on his financial disclosure 
    statement even though an exemption set forth in this part would 
    permit the employee to participate in a matter affecting the 
    underlying assets of the fund or plan. Conversely, there may be 
    situations in which no exemption in this part is applicable to the 
    assets of a fund or plan which is properly reported as an EIF on the 
    employee's financial disclosure statement.
    
        (b) Employee means an officer or employee of the executive branch 
    of the United States, or of any independent agency of the United 
    States, a Federal Reserve bank director, officer, or employee, or an 
    officer or employee of the District of Columbia. The term also includes 
    a special Government employee as defined in 18 U.S.C. 202.
        (c) Employee benefit plan means a plan as defined in section 3(3) 
    of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 
    1002(3), and that has more than one participant. An employee benefit 
    plan is any plan, fund or program established or maintained by an 
    employer or an employee organization, or both, to provide its 
    participants medical, disability, death, unemployment, or vacation 
    benefits, training programs, day care centers, scholarship funds, 
    prepaid legal services, deferred income, or retirement income.
        (d) He, his, and him include she, hers, and her.
        (e) Holdings means portfolio of investments.
        (f) Independent trustee means a trustee who is independent of the 
    sponsor and the participants in a plan, or is a registered investment 
    advisor.
        (g) Institution of higher education means an educational 
    institution as defined in 20 U.S.C. 1141(a).
        (h) Issuer means a person who issues or proposes to issue any 
    security, or has any outstanding security which it has issued.
        (i) Long-term Federal Government security means a bond or note, 
    except for a U.S. Savings bond, with a maturity of more than one year 
    issued by the United States Treasury pursuant to 31 U.S.C. chapter 31.
        (j) Municipal security means direct obligation of, or obligation 
    guaranteed as to principal or interest by, a State (or any of its 
    political subdivisions, or any municipal corporate instrumentality of 
    one or more States), or the District of Columbia, Puerto Rico, the 
    Virgin Islands, or any other possession of the United States.
        (k) Mutual fund means an entity which is registered as a management 
    company under the Investment Company Act of 1940, as amended (15 U.S.C. 
    80a-1 et seq.). For purposes of this part, the term mutual fund 
    includes open-end and closed-end mutual funds and registered money 
    market funds.
        (l) Particular matter involving specific parties includes any 
    judicial or other proceeding, application, request for a ruling or 
    other determination, contract, claim, controversy, investigation, 
    charge, accusation, arrest or other particular matter involving a 
    specific party or parties. The term typically involves a specific 
    proceeding affecting the legal rights of the parties, or an isolatable 
    transaction or related set of transactions between identified parties.
        (m) Particular matter of general applicability means a particular 
    matter that is focused on the interests of a discrete and identifiable 
    class of persons, but does not involve specific parties.
        (n) Pension plan means any plan, fund or program maintained by an 
    employer or an employee organization, or both, to provide retirement 
    income to employees, or which results in deferral of income for periods 
    extending to, or beyond, termination of employment.
        (o) Person means an individual, corporation, company, association, 
    firm, partnership, society or any other organization or institution.
        (p) Publicly traded security means a security as defined in 
    paragraph (r) of this section and which is:
        (1) Registered with the Securities and Exchange Commission pursuant 
    to section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) 
    and listed on a national or regional securities exchange or traded 
    through NASDAQ;
        (2) Issued by an investment company registered pursuant to section 
    8 of the Investment Company Act of 1940, as amended (15 U.S.C. 80a-8); 
    or
        (3) A corporate bond registered as an offering with the Securities 
    and Exchange Commission under section 12 of the Securities Exchange Act 
    of 1934 (15 U.S.C. 78l) and issued by an entity whose stock is a 
    publicly traded security.
    
        Note to paragraph (p): National securities exchanges include the 
    American Stock Exchange and the New York Stock Exchange. Regional 
    exchanges include Boston, Cincinnati, Intermountain (Salt Lake 
    City), Midwest (Chicago), Pacific (Los Angeles and San Francisco), 
    Philadelphia (Philadelphia and Miami), and Spokane stock exchanges.
    
        (q) Sector mutual fund means a mutual fund that concentrates its 
    investments in an industry, business, single country other than the 
    United States, or bonds of a single State within the United States.
        (r) Security means common stock, preferred stock, corporate bond, 
    municipal security, mutual fund, long-term Federal Government security, 
    and limited partnership interest.
        (s) Short-term Federal Government security means a bill with a 
    maturity of one year or less issued by the United States Treasury 
    pursuant to 31 U.S.C. chapter 31.
        (t) Special Government employee means those executive branch 
    officers or employees specified in 18 U.S.C. 202(a). A special 
    Government employee is retained, designated, appointed or employed to 
    perform temporary duties either on a full-time or intermittent basis, 
    with or without compensation, for a period not to exceed 130 days 
    during any consecutive 365-day period.
        (u) Unit investment trust means an investment company as defined in 
    15 U.S.C. 80a-4(2) that is a regulated investment company under 26 
    U.S.C. 851.
        (v) United States Savings bond means a savings bond issued by the 
    United States Treasury pursuant to 31 U.S.C. 3105.
    
    
    Sec. 2640.103   Prohibition.
    
        (a) Statutory prohibition. Unless permitted by 18 U.S.C. 208(b) 
    (1)-(4), an employee is prohibited by 18 U.S.C. 208(a) from 
    participating personally and substantially in an official capacity in 
    any particular matter in which, to his knowledge, he or any other 
    person specified in the statute has a financial interest, if the 
    particular matter will have a direct and predictable effect on
    
    [[Page 66843]]
    
    that interest. The restrictions of 18 U.S.C. 208 are described more 
    fully in 5 CFR 2635.401 and 2635.402.
        (1) Particular matter. The term ``particular matter'' includes only 
    matters that involve deliberation, decision, or action that is focused 
    upon the interests of specific persons, or a discrete and identifiable 
    class of persons. The term may include matters which do not involve 
    formal parties and may extend to legislation or policy making that is 
    narrowly focused on the interests of a discrete and identifiable class 
    of persons. It does not, however, cover consideration or adoption of 
    broad policy options directed to the interests of a large and diverse 
    group of persons. The particular matters covered by this part include a 
    judicial or other proceeding, application or request for a ruling or 
    other determination, contract, claim, controversy, charge, accusation 
    or arrest.
    
        Example 1: The Overseas Private Investment Corporation decides 
    to hire a contractor to conduct EEO training for its employees. The 
    award of a contract for training services is a particular matter.
        Example 2: The spouse of a high level official of the Internal 
    Revenue Service (IRS) requests a meeting on behalf of her client (a 
    major U.S. corporation) with IRS officials to discuss a provision of 
    IRS regulations governing depreciation of equipment. The spouse will 
    be paid a fee by the corporation for arranging and attending the 
    meeting. The consideration of the spouse's request and the decision 
    to hold the meeting are particular matters in which the spouse has a 
    financial interest.
        Example 3: A regulation published by the Department of 
    Agriculture applicable only to companies that operate meat packing 
    plants is a particular matter.
        Example 4: A change by the Department of Labor to health and 
    safety regulations applicable to all employers in the United States 
    is not a particular matter. The change in the regulations is 
    directed to the interests of a large and diverse group of persons.
        Example 5: The allocation of additional resources to the 
    investigation and prosecution of white collar crime by the 
    Department of Justice is not a particular matter. Similarly, 
    deliberations on the general merits of an omnibus bill such as the 
    Tax Reform Act of 1986 are not sufficiently focused on the interests 
    of specific persons, or a discrete and identifiable group of persons 
    to constitute participation in a particular matter.
        Example 6: The recommendations of the Council of Economic 
    Advisors to the President about appropriate policies to maintain 
    economic growth and stability are not particular matters. 
    Discussions about economic growth policies are directed to the 
    interests of a large and diverse group of persons.
        Example 7: The formulation and implementation of the response of 
    the United States to the military invasion of a U.S. ally is not a 
    particular matter. General deliberations, decisions and actions 
    concerning a response are based on a consideration of the political, 
    military, diplomatic and economic interests of every sector of 
    society and are too diffuse to be focused on the interests of 
    specific individuals or entities. However, at the time consideration 
    is given to actions focused on specific individuals or entities, or 
    a discrete and identifiable class of individuals or entities, the 
    matters under consideration would be particular matters. These would 
    include, for example, discussions whether to close a particular oil 
    pumping station or pipeline in the area where hostilities are taking 
    place, or a decision to seize a particular oil field or oil tanker.
        Example 8: A legislative proposal for broad health care reform 
    is not a particular matter because it is not focused on the 
    interests of specific persons, or a discrete and identifiable class 
    of persons. It is intended to affect every person in the United 
    States. However, consideration and implementation, through 
    regulations, of a section of the health care bill limiting the 
    amount that can be charged for prescription drugs is sufficiently 
    focused on the interests of pharmaceutical companies that it would 
    be a particular matter.
    
        (2) Personal and substantial participation. To participate 
    ``personally'' means to participate directly. It includes the direct 
    and active supervision of the participation of a subordinate in the 
    matter. To participate ``substantially'' means that the employee's 
    involvement is of significance to the matter. Participation may be 
    substantial even though it is not determinative of the outcome of a 
    particular matter. However, it requires more than official 
    responsibility, knowledge, perfunctory involvement, or involvement on 
    an administrative or peripheral issue. A finding of substantiality 
    should be based not only on the effort devoted to the matter, but also 
    on the importance of the effort. While a series of peripheral 
    involvements may be insubstantial, the single act of approving or 
    participating in a critical step may be substantial. Personal and 
    substantial participation may occur when, for example, an employee 
    participates through decision, approval, disapproval, recommendation, 
    investigation or the rendering of advice in a particular matter.
    
        Example 1: An agency's Office of Enforcement is investigating 
    the allegedly fraudulent marketing practices of a major corporation. 
    One of the agency's personnel specialists is asked to provide 
    information to the Office of Enforcement about the agency's 
    personnel ceiling so that the Office can determine whether new 
    employees can be hired to work on the investigation. The employee 
    personnel specialist owns $10,000 worth of stock in the corporation 
    that is the target of the investigation. She does not have a 
    disqualifying financial interest in the matter (the investigation 
    and possible subsequent enforcement proceedings) because her 
    involvement is on a peripheral personnel issue and her participation 
    cannot be considered ``substantial'' as defined in the statute.
    
        (3) Direct and predictable effect. (i) A particular matter will 
    have a ``direct'' effect on a financial interest if there is a close 
    causal link between any decision or action to be taken in the matter 
    and any expected effect of the matter on the financial interest. An 
    effect may be direct even though it does not occur immediately. A 
    particular matter will not have a direct effect on a financial 
    interest, however, if the chain of causation is attenuated or is 
    contingent upon the occurrence of events that are speculative or that 
    are independent of, and unrelated to, the matter. A particular matter 
    that has an effect on a financial interest only as a consequence of its 
    effects on the general economy does not have a direct effect within the 
    meaning of this part.
        (ii) A particular matter will have a ``predictable'' effect if 
    there is a real, as opposed to a speculative, possibility that the 
    matter will affect the financial interest. It is not necessary, 
    however, that the magnitude of the gain or loss be known, and the 
    dollar amount of the gain or loss is immaterial.
    
        Example 1: An attorney at the Department of Justice is working 
    on a case in which several large companies are defendants. If the 
    Department wins the case, the defendants may be required to 
    reimburse the Federal Government for their failure to adequately 
    perform work under several contracts with the Government. The 
    attorney's spouse is a salaried employee of one of the companies, 
    working in a division that has no involvement in any of the 
    contracts. She does not participate in any bonus or benefit plans 
    tied to the profitability of the company, nor does she own stock in 
    the company. Because there is no evidence that the case will have a 
    direct and predictable effect on whether the spouse will retain her 
    job or maintain the level of her salary, or whether the company will 
    undergo any reorganization that would affect her interests, the 
    attorney would not have a disqualifying financial interest in the 
    matter. However, the attorney must consider, under the requirements 
    of Sec. 2635.502 of this chapter, whether his impartiality would be 
    questioned if he continues to work on the case.
        Example 2: A special Government employee (SGE) whose principal 
    employment is as a researcher at a major university is appointed to 
    serve on an advisory committee that will evaluate the safety and 
    effectiveness of a new medical device to regulate arrhythmic 
    heartbeats. The device is being developed by Alpha Medical Inc., a 
    company which also has contracted with the SGE's university to 
    assist in developing another medical device related to
    
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    kidney dialysis. There is no evidence that the advisory committee's 
    determinations concerning the medical device under review will 
    affect Alpha Medical's contract with the university to develop the 
    kidney dialysis device. The SGE may participate in the committee's 
    deliberations because those deliberations will not have a direct and 
    predictable effect on the financial interests of the researcher or 
    his employer.
        Example 3: The SGE in the preceding example is instead asked to 
    serve on an advisory committee that has been convened to conduct a 
    preliminary evaluation of the new kidney dialysis device developed 
    by Alpha Medical under contract with the employee's university. 
    Alpha's contract with the university requires the university to 
    undertake additional testing of the device to address issues raised 
    by the committee during its review. The committee's actions will 
    have a direct and predictable effect on the university's financial 
    interest.
        Example 4: An engineer at the Environmental Protection Agency 
    (EPA) was formerly employed by Waste Management, Inc., a corporation 
    subject to EPA's regulations concerning the disposal of hazardous 
    waste materials. Waste Management is a large corporation, with less 
    than 5% of its profits derived from handling hazardous waste 
    materials. The engineer has a vested interest in a defined benefit 
    pension plan sponsored by Waste Management which guarantees that he 
    will receive payments of $500 per month beginning at age 62. As an 
    employee of EPA, the engineer has been assigned to evaluate Waste 
    Management's compliance with EPA hazardous waste regulations. There 
    is no evidence that the engineer's monitoring activities will affect 
    Waste Management's ability or willingness to pay his pension 
    benefits when he is entitled to receive them at age 62. Therefore, 
    the EPA's monitoring activities will not have a direct and 
    predictable effect on the employee's financial interest in his Waste 
    Management pension. However, the engineer should consider whether, 
    under the standards set forth in 5 CFR 2635.502, a reasonable person 
    would question his impartiality if he acts in a matter in which 
    Waste Management is a party.
    
        (b) Disqualifying financial interests. For purposes of 18 U.S.C. 
    208(a) and this part, the term financial interest means the potential 
    for gain or loss to the employee, or other person specified in section 
    208, as a result of governmental action on the particular matter. The 
    disqualifying financial interest might arise from ownership of certain 
    financial instruments or investments such as stock, bonds, mutual 
    funds, or real estate. Additionally, a disqualifying financial interest 
    might derive from a salary, indebtedness, job offer, or any similar 
    interest that may be affected by the matter.
    
        Example 1: An employee of the Department of the Interior owns 
    transportation bonds issued by the State of Minnesota. The proceeds 
    of the bonds will be used to fund improvements to certain State 
    highways. In her official position, the employee is evaluating an 
    application from Minnesota for a grant to support a State wildlife 
    refuge. The employee's ownership of the transportation bonds does 
    not create a disqualifying financial interest in Minnesota's 
    application for wildlife funds because approval or disapproval of 
    the grant will not in any way affect the current value of the bonds 
    or have a direct and predictable effect on the State's ability or 
    willingness to honor its obligation to pay the bonds when they 
    mature.
        Example 2: An employee of the Bureau of Land Management owns 
    undeveloped land adjacent to Federal lands in New Mexico. A portion 
    of the Federal land will be leased by the Bureau to a mining company 
    for exploration and development, resulting in an increase in the 
    value of the surrounding privately owned land, including that owned 
    by the employee. The employee has a financial interest in the lease 
    of the Federal land to the mining company and, therefore, cannot 
    participate in Bureau matters involving the lease unless he obtains 
    an individual waiver pursuant to 18 U.S.C. 208(b)(1).
        Example 3: A special Government employee serving on an advisory 
    committee studying the safety and effectiveness of a new arthritis 
    drug is a practicing physician with a specialty in treating 
    arthritis. The drug being studied by the committee would be a low 
    cost alternative to current treatments for arthritis. If the drug is 
    ultimately approved, the physician will be able to prescribe the 
    less expensive drug. The physician does not own stock in, or hold 
    any position, or have any business relationship with the company 
    developing the drug. Moreover, there is no indication that the 
    availability of a less expensive treatment for arthritis will 
    increase the volume and profitability of the doctor's private 
    practice. Accordingly, the physician has no disqualifying financial 
    interest in the actions of the advisory committee.
    
        (c) Interests of others. The financial interests of the following 
    persons will serve to disqualify an employee to the same extent as the 
    employee's own interests:
        (1) The employee's spouse;
        (2) The employee's minor child;
        (3) The employee's general partner;
        (4) An organization or entity which the employee serves as officer, 
    director, trustee, general partner, or employee; and
        (5) A person with whom the employee is negotiating for, or has an 
    arrangement concerning, prospective employment.
    
        Example 1: An employee of the Consumer Product Safety Commission 
    (CPSC) has two minor children who have inherited shares of stock 
    from their grandparents in a company that manufactures small 
    appliances. Unless an exemption is applicable under Sec. 2640.202 or 
    he obtains a waiver under 18 U.S.C. 208(b)(1), the employee is 
    disqualified from participating in a CPSC proceeding to require the 
    manufacturer to remove a defective appliance from the market.
        Example 2: A newly appointed employee of the Department of 
    Housing and Urban Development (HUD) is a general partner with three 
    former business associates in a partnership that owns a travel 
    agency. The employee knows that his three general partners are also 
    partners in another partnership that owns a HUD-subsidized housing 
    project. Unless he receives a waiver pursuant to 18 U.S.C. 208(b)(1) 
    permitting him to act, the employee must disqualify himself from 
    particular matters involving the HUD-subsidized project which his 
    general partners own.
        Example 3: The spouse of an employee of the Department of Health 
    and Human Services (HHS) works for a consulting firm that provides 
    support services to colleges and universities on research projects 
    they are conducting under grants from HHS. The spouse is a salaried 
    employee who has no direct ownership interest in the firm such as 
    through stockholding, and the award of a grant to a particular 
    university will have no direct and predictable effect on his 
    continued employment or his salary. Because the award of a grant 
    will not affect the spouse's financial interest, section 208 would 
    not bar the HHS employee from participating in the award of a grant 
    to a university to which the consulting firm will provide services. 
    However, the employee should consider whether her participation in 
    the award of the grant would be barred under the impartiality 
    provision in the Standards of Ethical Conduct for Employees of the 
    Executive Branch at 5 CFR 2635.502.
    
        (d) Disqualification. Unless the employee is authorized to 
    participate in the particular matter by virtue of an exemption or 
    waiver described in subpart B or subpart C of this part, or the 
    interest has been divested in accordance with paragraph (e) of this 
    section, an employee shall disqualify himself from participating in a 
    particular matter in which, to his knowledge, he or any other person 
    specified in the statute has a financial interest, if the particular 
    matter will have a direct and predictable effect on that interest. 
    Disqualification is accomplished by not participating in the particular 
    matter.
        (1) Notification. An employee who becomes aware of the need to 
    disqualify himself from participation in a particular matter to which 
    he has been assigned should notify the person responsible for his 
    assignment. An employee who is responsible for his own assignments 
    should take whatever steps are necessary to ensure that he does not 
    participate in the matter from which he is disqualified. Appropriate 
    oral or written notification of the employee's disqualification may be 
    made to coworkers by the employee or a supervisor to ensure that the 
    employee is not involved in a matter from which he is disqualified.
    
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        (2) Documentation. An employee need not file a written 
    disqualification statement unless he is required by part 2634 of this 
    chapter to file written evidence of compliance with an ethics agreement 
    with the Office of Government Ethics, is asked by an agency ethics 
    official or the person responsible for his assignment to file a written 
    disqualification statement, or is required to do so by agency 
    supplemental regulation issued pursuant to 5 CFR 2635.105. However, an 
    employee may elect to create a record of his actions by providing 
    written notice to a supervisor or other appropriate official.
    
        Example 1: The supervisor of an employee of the Department of 
    Education asks the employee to attend a meeting on his behalf on 
    developing national standards for science education in secondary 
    schools. When the employee arrives for the meeting, she realizes one 
    of the participants is the president of Education Consulting 
    Associates (ECA), a firm which has been awarded a contract to 
    prepare a bulletin describing the Department's policies on science 
    education standards. The employee's spouse has a subcontract with 
    ECA to provide the graphics and charts that will be used in the 
    bulletin. Because the employee realizes that the meeting will 
    involve matters relating to the production of the bulletin, the 
    employee properly decides that she must disqualify herself from 
    participating in the discussions. After withdrawing from the 
    meeting, the employee should notify her supervisor about the reason 
    for her disqualification. She may elect to put her disqualification 
    statement in writing, or to simply notify her supervisor orally. She 
    may also elect to notify appropriate coworkers about her need to 
    disqualify herself from this matter.
    
        (e) Divestiture of a disqualifying financial interest. Upon sale or 
    other divestiture of the asset or other interest that causes his 
    disqualification from participation in a particular matter, an employee 
    is no longer prohibited from acting in the particular matter.
        (1) Voluntary divestiture. An employee who would otherwise be 
    disqualified from participation in a particular matter may voluntarily 
    sell or otherwise divest himself of the interest that causes the 
    disqualification.
        (2) Directed divestiture. An employee may be required to sell or 
    otherwise divest himself of the disqualifying financial interest if his 
    continued holding of that interest is prohibited by statute or by 
    agency supplemental regulation issued in accordance with 
    Sec. 2635.403(a) of this chapter, or if the agency determines in 
    accordance with Sec. 2635.403(b) of this chapter that a substantial 
    conflict exists between the financial interest and the employee's 
    duties or accomplishment of the agency's mission.
        (3) Eligibility for special tax treatment. An employee who is 
    directed to divest an interest may be eligible to defer the tax 
    consequences of divestiture under subpart J of part 2634 of this 
    chapter. An employee who divests before obtaining a certificate of 
    divestiture will not be eligible for this special tax treatment.
        (f) Official duties that give rise to potential conflicts. Where an 
    employee's official duties create a substantial likelihood that the 
    employee may be assigned to a particular matter from which he is 
    disqualified, the employee should advise his supervisor or other person 
    responsible for his assignments of that potential so that conflicting 
    assignments can be avoided, consistent with the agency's needs.
    
    Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)
    
    
    Sec. 2640.201  Exemptions for interests in mutual funds, unit 
    investment trusts, and employee benefit plans.
    
        (a) Diversified mutual funds and unit investment trusts. An 
    employee may participate in any particular matter affecting one or more 
    holdings of a diversified mutual fund or a diversified unit investment 
    trust where the disqualifying financial interest in the matter arises 
    because of the ownership of an interest in the fund or trust.
    
        Example 1: An employee owns shares worth $100,000 in several 
    mutual funds whose portfolios contain stock in a small computer 
    company. Each mutual fund prospectus describes the fund as a 
    ``management company,'' but does not characterize the fund as having 
    a policy of concentrating its investments in any particular 
    industry, business, single country (other than the U.S.) or bonds of 
    a single State. The employee may participate in agency matters 
    affecting the computer company.
        Example 2: A nonsupervisory employee of the Department of Energy 
    owns shares in a mutual fund that expressly concentrates its 
    holdings in the stock of utility companies. The employee may not 
    rely on the exemption in paragraph (a) of this section to act in 
    matters affecting a utility company whose stock is part of the 
    mutual fund's portfolio because the fund is not a diversified fund 
    as defined in Sec. 2640.102(a). The employee may, however, seek an 
    individual waiver under 18 U.S.C. 208(b)(1) permitting him to act. 
    Moreover, depending upon the value of the employee's interest in the 
    fund and the type of particular matter in which he would 
    participate, one of the exemptions at Sec. 2640.202(a) or (b) for 
    interests arising from publicly traded securities may be applicable.
    
        (b) Sector mutual funds. An employee may participate in any 
    particular matter affecting one or more holdings of a sector mutual 
    fund where the affected holding is not invested in the sector in which 
    the fund concentrates, and where the disqualifying financial interest 
    in the matter arises because of ownership of an interest in the fund.
    
        Example 1: An employee of the Federal Reserve owns shares in the 
    mutual fund described in the preceding example. In addition to 
    holdings in utility companies, the mutual fund contains stock in 
    certain regional banks and bank holding companies whose financial 
    interests would be affected by an investigation in which the Federal 
    Reserve employee would participate. The employee is not disqualified 
    from participating in the investigation because the banks that would 
    be affected are not part of the sector in which the fund 
    concentrates.
    
        (c) Employee benefit plans. An employee may participate in:
        (1) Any particular matter affecting one or more holdings of an 
    employee benefit plan, where the disqualifying financial interest in 
    the matter arises from membership in:
        (i) The Thrift Savings Plan for Federal employees described in 5 
    U.S.C. 8437;
        (ii) A pension plan established or maintained by a State government 
    or any political subdivision of a State government for its employees; 
    or
        (iii) A diversified employee benefit plan, provided:
        (A) The investments of the plan are administered by an independent 
    trustee, and the employee, or other person specified in section 208(a) 
    does not participate in the selection of the plan's investments or 
    designate specific plan investments (except for directing that 
    contributions be divided among several different categories of 
    investments, such as stocks, bonds or mutual funds, which are available 
    to plan participants); and
        (B) The plan is not a profit-sharing or stock bonus plan.
    
        Note to paragraph (a)(1): Employee benefit plans that are tax 
    deferred under 26 U.S.C. 401(k) are not considered profit-sharing 
    plans for purposes of this section. However, for the exemption to 
    apply, 401(k) plans must meet the requirements of paragraph 
    (c)(1)(iii)(A) of this section.
    
        (2) Particular matters of general applicability, such as 
    rulemaking, affecting the State or local government sponsor of a State 
    or local government pension plan described in paragraph (c)(1)(ii) of 
    this section where the disqualifying financial interest in the matter 
    arises because of participation in the plan.
    
        Example 1: An attorney terminates his position with a law firm 
    to take a position with the Department of Justice. As a result of 
    his employment with the firm, the employee has interests in a 401(k) 
    plan, the assets of which are invested primarily in stocks chosen by 
    an independent financial management firm. He also participates in a
    
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    defined contribution pension plan maintained by the firm, the assets 
    of which are stocks, bonds, and financial instruments. The plan is 
    managed by an independent trustee. Assuming that the manager of the 
    pension plan has a written policy of diversifying plan investments, 
    the employee may act in matters affecting the plan's holdings. The 
    employee may also participate in matters affecting the holdings of 
    his 401(k) plan if the individual financial management firm that 
    selects the plan's investments has a written policy of diversifying 
    the plan's assets. Employee benefit plans that are tax deferred 
    under 26 U.S.C. 401(k) are not considered profit-sharing or stock 
    bonus plans for purposes of this part.
        Example 2: An employee of the Department of Agriculture who is a 
    former New York State employee has a vested interest in a pension 
    plan established by the State of New York for its employees. She may 
    participate in an agency matter that would affect a company whose 
    stock is in the pension plan's portfolio. She also may participate 
    in a matter of general applicability affecting all States, including 
    the State of New York, such as the drafting and promulgation of a 
    rule requiring States to expend additional resources implementing 
    the Food Stamp program. Unless she obtains an individual waiver 
    under 18 U.S.C. 208(b)(1), she may not participate in a matter 
    involving the State of New York as a party, such as an application 
    by the State for additional Federal funding for administrative 
    support services, if that matter would affect the State's ability or 
    willingness to honor its obligation to pay her pension benefits.
    
    
    Sec. 2640.202  Exemptions for interests in securities.
    
        (a) De minimis exemption for matters involving parties. An employee 
    may participate in any particular matter involving specific parties in 
    which the disqualifying financial interest arises from the ownership by 
    the employee, his spouse or minor children of securities issued by one 
    or more entities affected by the matter, if:
        (1) The securities are publicly traded, or are long-term Federal 
    Government, or are municipal securities; and
        (2) The aggregate market value of the holdings of the employee, his 
    spouse, and his minor children in the securities of all entities does 
    not exceed $5,000.
    
        Example 1: An employee owns 100 shares of publicly traded stock 
    valued at $3,000 in XYZ Corporation. As part of his official duties, 
    the employee is evaluating bids for performing computer maintenance 
    services at his agency and discovers that XYZ Corporation is one of 
    the companies that has submitted a bid. The employee is not required 
    to recuse himself from continuing to evaluate the bids.
        Example 2: In the preceding example, the employee and his spouse 
    each own 100 shares of stock in XYZ Corporation, resulting in 
    ownership of $6,000 worth of stock by the employee and his spouse. 
    The exemption in paragraph (a) of this section would not permit the 
    employee to participate in the evaluation of bids because the 
    aggregate market value of the holdings of the employee, spouse and 
    minor children in XYZ Corporation exceeds $5,000. The employee 
    could, however, seek an individual waiver under 18 U.S.C. 208(b)(1) 
    in order to participate in the evaluation of bids.
        Example 3: An employee is assigned to monitor XYZ Corporation's 
    performance of a contract to provide computer maintenance services 
    at the employee's agency. At the time the employee is first assigned 
    these duties, he owns publicly traded stock in XYZ Corporation 
    valued at less than $5,000. During the time the contract is being 
    performed, however, the value of the employee's stock increases to 
    $7,500. When the employee knows that the value of his stock exceeds 
    $5,000, he must disqualify himself from any further participation in 
    matters affecting XYZ Corporation or seek an individual waiver under 
    18 U.S.C. 208(b)(1). Alternatively, the employee may divest the 
    portion of his XYZ stock that exceeds $5,000. This can be 
    accomplished through a standing order with his broker to sell when 
    the value of the stock exceeds $5,000.
    
        (b) De minimis exemption for matters of general applicability. An 
    employee may participate in any particular matter of general 
    applicability, such as rulemaking, in which the disqualifying financial 
    interest arises from the ownership by the employee, his spouse or minor 
    children of securities issued by one or more entities affected by the 
    matter, if:
        (i) The securities are publicly traded, or are municipal 
    securities, the market value of which does not exceed:
        (A) $25,000 in any one such entity; and
        (B) $50,000 in all affected entities; or
        (ii) The securities are long-term Federal Government securities, 
    the market value of which does not exceed $50,000.
        (2) For purposes of this paragraph (b), the value of securities 
    owned by the employee, his spouse, and minor children must be 
    aggregated in applying the exemption.
    
        Example 1: The Bureau of Export Administration at the Department 
    of Commerce is in the process of formulating a regulation concerning 
    exportation of portable computers. The regulation will affect all 
    domestic companies that sell portable computers. An employee of the 
    Department who is assisting in drafting the regulation owns $17,000 
    worth of stock in CompAmerica and $20,000 worth of stock in XYZ 
    Computer Inc. Even though the employee owns $37,000 worth of stock 
    in companies that will be affected by the regulation, she may 
    participate in drafting the regulation because the value of the 
    securities she owns does not exceed $25,000 in any one affected 
    company and the total value of stock owned in all affected companies 
    does not exceed $50,000.
        Example 2: A health scientist administrator employed in the 
    Public Health Service at the Department of Health and Human Services 
    is assigned to serve on a Department-wide task force that will 
    recommend changes in how Medicare reimbursements will be made to 
    health care providers. The employee owns $10,000 worth of shares in 
    a sector mutual fund invested primarily in health-related companies 
    such as pharmaceuticals, developers of medical instruments and 
    devices, managed care health organizations, and acute care 
    hospitals. Because the fund is not a ``diversified mutual fund'' as 
    defined in Sec. 2640.102(a), the exemption at Sec. 2640.201(a) is 
    not applicable. However, because the fund is a ``publicly traded 
    security'' as defined in Sec. 2640.102(p), the exemption for 
    financial interests arising from ownership of a de minimis amount of 
    securities at paragraph (b) of this section will permit the employee 
    to participate on the task force.
    
        (c) Exemption for certain Federal Government securities. An 
    employee may participate in any particular matter in which the 
    disqualifying financial interest arises from the ownership of short-
    term Federal Government securities or from U.S. Savings bonds.
        (d) Exemption for interests of tax-exempt organizations. An 
    employee may participate in any particular matter in which the 
    disqualifying financial interest arises from the ownership of publicly 
    traded or municipal securities, or long-term Federal Government 
    securities by an organization which is tax-exempt pursuant to 26 U.S.C. 
    501(c) (3) or (4), and of which the employee is an unpaid officer, 
    director, or trustee, or an employee, if:
        (1) The matter affects only the organization's investments, not the 
    organization directly;
        (2) The employee plays no role in making investment decisions for 
    the organization, except for participating in the decision to invest in 
    several different categories of investments such as stocks, bonds, or 
    mutual funds; and
        (3) The organization's only relationship to the issuer, other than 
    that which arises from routine commercial transactions, is that of 
    investor.
    
        Example 1: An employee of the Federal Reserve is a director of 
    the National Association to Save Trees (NAST), an environmental 
    organization that is tax-exempt under section 501(c)(3) of the 
    Internal Revenue Code. The employee knows that NAST has an endowment 
    fund that is partially invested in the publicly traded stock of 
    Computer Inc. The employee's position at the Federal Reserve 
    involves the procurement of computer software, including software 
    marketed by Computer Inc. The employee may participate in the 
    procurement of software from Computer Inc. provided that he is not 
    involved in selecting NAST's investments, and that NAST has no 
    relationship to Computer Inc. other than as
    
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    an investor in the company and routine purchaser of Computer Inc. 
    software.
    
        (e) Exemption for certain interests of general partners. An 
    employee may participate in any particular matter in which the 
    disqualifying financial interest arises from:
        (1) The ownership of publicly traded securities, long-term Federal 
    Government securities, or municipal securities by the employee's 
    general partner, provided:
        (i) Ownership of the securities is not related to the partnership 
    between the employee and his general partner, and
        (ii) The value of the securities does not exceed $200,000; or
        (2) Any interest of the employee's general partner if the 
    employee's relationship to the general partner is as a limited partner 
    in a partnership that has at least 100 limited partners.
    
        Example 1: An employee of the Department of Transportation is a 
    general partner in a partnership that owns commercial property. The 
    employee knows that one of his partners owns stock in an aviation 
    company valued at $100,000 because the stock has been pledged as 
    collateral for the purchase of the commercial property by the 
    partnership. In the absence of an individual waiver under 18 U.S.C. 
    208(b)(1), the employee may not act in a matter affecting the 
    aviation company. Because the stock has been pledged as collateral, 
    ownership of the securities is related to the partnership between 
    the employee and his general partner.
        Example 2: An employee of the Pension Benefit Guaranty 
    Corporation (PBGC) has a limited partnership interest in Ambank 
    Partners, a large partnership with more than 500 limited partners. 
    The partnership assets are invested in the securities of various 
    financial institutions. Ambank's general partner is Capital 
    Investment Services, an investment firm whose pension plan for its 
    own employees is being examined by the PBGC for possible unfunded 
    liabilities. Even though the employee's general partner (Capital 
    Investment Services) has a financial interest in PBGC's review of 
    the pension plan, the employee may participate in the review because 
    his relationship with his general partner is that of a limited 
    partner in a partnership that has at least 100 limited partners.
    
    
    Sec. 2640.203  Miscellaneous exemptions.
    
        (a) Hiring decisions. An employee may participate in a hiring 
    decision involving an applicant who is currently employed by a 
    corporation that issues publicly traded securities, if the 
    disqualifying financial interest arises from:
        (1) Ownership of publicly traded securities issued by the 
    corporation; or
        (2) Participation in a vested pension plan sponsored by the 
    corporation.
        (b) Employees on leave from institutions of higher education. An 
    employee on a leave of absence from an institution of higher education 
    may participate in any particular matter of general applicability 
    affecting the financial interests of the institution from which he is 
    on leave, provided that the matter will not have a special or distinct 
    effect on that institution other than as part of a class.
    
        Example 1: An employee at the Department of Defense (DOD) is on 
    a leave of absence from his position as a tenured Professor of 
    Engineering at the University of California (UC) at Berkeley. While 
    at DOD, he is assigned to assist in developing a regulation which 
    will contain new standards for the oversight of grants given by DOD. 
    Even though the University of California at Berkeley is a DOD 
    grantee, and will be affected by these new monitoring standards, the 
    employee may participate in developing the standards because UC 
    Berkeley will be affected only as part of the class of all DOD 
    grantees. However, if the new standards would affect the employee's 
    own financial interest, such as by affecting his tenure or his 
    salary, the employee could not participate in the matter unless he 
    first obtains an individual waiver under section 208(b)(1).
        Example 2: An employee on leave from a university could not 
    participate in the development of an agency program of grants 
    specifically designed to facilitate research in jet propulsion 
    systems where the employee's university is one of just two or three 
    universities likely to receive a grant under the new program. Even 
    though the grant announcement is open to all universities, the 
    employee's university is among the very few known to have facilities 
    and equipment adequate to conduct the research. The matter would 
    have a distinct effect on the institution other than as part of a 
    class.
    
        (c) Multi-campus institutions of higher education. An employee may 
    participate in any particular matter affecting one campus of a State 
    multi-campus institution of higher education, if the employee's 
    disqualifying financial interest is employment in a position with no 
    multi-campus responsibilities at a separate campus of the same multi-
    campus institution.
    
        Example 1: A special Government employee (SGE) member of an 
    advisory committee convened by the National Science Foundation is a 
    full-time professor in the School of Engineering at one campus of a 
    State university. The SGE may participate in formulating the 
    committee's recommendation to award a grant to a researcher at 
    another campus of the same State university system.
        Example 2: A member of the Board of Regents at a State 
    university is asked to serve on an advisory committee established by 
    the Department of Health and Human Services to consider applications 
    for grants for human genome research projects. An application from 
    another university that is part of the same State system will be 
    reviewed by the committee. Unless he receives an individual waiver 
    under section 208(b)(1) or (b)(3), the advisory committee member may 
    not participate in matters affecting the second university that is 
    part of the State system because as a member of the Board of 
    Regents, he has duties and responsibilities that affect the entire 
    State educational system.
    
        (d) Exemptions for financial interests arising from Federal 
    Government employment or from Social Security or veterans' benefits. An 
    employee may participate in any particular matter where the 
    disqualifying financial interest arises from Federal Government or 
    Federal Reserve Bank salary or benefits, or from Social Security or 
    veterans' benefits, except an employee may not:
        (1) Make determinations that individually or specially affect his 
    own salary and benefits; or
        (2) Make determinations, requests, or recommendations that 
    individually or specially relate to, or affect, the salary or benefits 
    of any other person specified in section 208.
    
        Example 1: An employee of the Office of Management and Budget 
    may vigorously and energetically perform the duties of his position 
    even though his outstanding performance would result in a 
    performance bonus or other similar merit award.
        Example 2: A policy analyst at the Defense Intelligence Agency 
    may request promotion to another grade or salary level. However, the 
    analyst may not recommend or approve the promotion of her general 
    partner to the next grade.
        Example 3: An engineer employed by the National Science 
    Foundation may request that his agency pay the registration fees and 
    appropriate travel expenses required for him to attend a conference 
    sponsored by the Engineering Institute of America. However, the 
    employee may not approve payment of his own travel expenses and 
    registration fees unless he has been delegated, in advance, 
    authority to make such approvals in accordance with agency policy.
        Example 4: A GS-14 attorney at the Department of Justice may 
    review and make comments about the legal sufficiency of a bill to 
    raise the pay level of all Federal employees paid under the General 
    Schedule even though her own pay level, and that of her spouse who 
    works at the Department of Labor, would be raised if the bill were 
    to become law.
        Example 5: An employee of the Department of Veterans Affairs 
    (VA) may assist in drafting a regulation that will provide expanded 
    hospital benefits for veterans, even though he himself is a veteran 
    who would be eligible for treatment in a hospital operated by the 
    VA.
        Example 6: An employee of the Office of Personnel Management may 
    participate in discussions with various health insurance providers 
    to formulate the package of benefits that will be available to 
    Federal employees who participate in the Government's Federal 
    Employees Health Benefits Program, even though the employee will 
    obtain health insurance from one of these providers through the 
    program.
    
    [[Page 66848]]
    
        Example 7: An employee of the Federal Supply Service Division of 
    the General Services Administration (GSA) may participate in GSA's 
    evaluation of the feasibility of privatizing the entire Federal 
    Supply Service, even though the employee's own position would be 
    eliminated if the Service were privatized.
        Example 8: Absent an individual waiver under section 208(b)(1), 
    the employee in the preceding example could not participate in the 
    implementation of a GSA plan to create an employee-owned private 
    corporation which would carry out Federal Supply Service functions 
    under contract with GSA. Because implementing the plan would result 
    not only in the elimination of the employee's Federal position, but 
    also in the creation of a new position in the new corporation to 
    which the employee would be transferred, the employee would have a 
    disqualifying financial interest in the matter arising from other 
    than Federal salary and benefits, or Social Security or veterans 
    benefits.
        Example 9: A career member of the Senior Executive Service (SES) 
    at the Internal Revenue Service (IRS) may serve on a performance 
    review board that makes recommendations about the performance awards 
    that will be awarded to other career SES employees at the IRS. The 
    amount of the employee's own SES performance award would be affected 
    by the board's recommendations because all SES awards are derived 
    from the same limited pool of funds. However, the employee's 
    activities on the board involve only recommendations, and not 
    determinations that individually or specially affect his own award. 
    Additionally, 5 U.S.C. 5384(c)(2) requires that a majority of the 
    board's members be career SES employees.
        Example 10: In carrying out a reorganization of the Office of 
    General Counsel (OGC) of the Federal Trade Commission, the Deputy 
    General Counsel is asked to determine which of five Senior Executive 
    Service (SES) positions in the OGC to abolish. Because her own 
    position is one of the five SES positions being considered for 
    elimination, the matter is one that would individually or specially 
    affect her own salary and benefits and, therefore, the Deputy may 
    not decide which position should be abolished.
    
        Note to paragraph (d): This exemption does not permit an 
    employee to take any action in violation of any other statutory or 
    regulatory requirement, such as the prohibition on the employment of 
    relatives at 5 U.S.C. 3110.
    
        (e) Commercial discount and incentive programs. An employee may 
    participate in any particular matter affecting the sponsor of a 
    discount, incentive, or other similar benefit program if the 
    disqualifying financial interest arises because of participation in the 
    program, provided:
        (1) The program is open to the general public; and
        (2) Participation in the program involves no other financial 
    interest in the sponsor, such as stockholding.
    
        Example 1: An attorney at the Pension Benefit Guaranty 
    Corporation who is a member of a frequent flier program sponsored by 
    Alpha Airlines may assist in an action against Alpha for failing to 
    make required payments to its employee pension fund, even though the 
    agency action will cause Alpha to disband its frequent flier 
    program.
    
        (f) Mutual insurance companies. An employee may participate in any 
    particular matter affecting a mutual insurance company if the 
    disqualifying financial interest arises because of an interest as a 
    policyholder, unless the matter would affect the company's ability to 
    pay claims required under the terms of the policy or to pay the cash 
    value of the policy.
        Example 1: An administrative law judge at the Department of 
    Labor receives dividends from a mutual insurance company which he 
    takes in the form of reduced premiums on his life insurance policy. 
    The amount of the dividend is based upon the company's overall 
    profitability. Nevertheless, he may preside in a Department hearing 
    involving a major corporation insured by the same company even 
    though the insurance company will have to pay the corporation's 
    penalties and other costs if the Department prevails in the hearing.
        Example 2: An employee of the Department of Justice is assigned 
    to prosecute a case involving the fraudulent practices of an issuer 
    of junk bonds. While developing the facts pertinent to the case, the 
    employee learns that the mutual life insurance company from which he 
    holds a life insurance policy has invested heavily in these junk 
    bonds. If the Government succeeds in its case, the bonds will be 
    worthless and the corresponding decline in the insurance company's 
    investments will impair the company's ability to pay claims under 
    the policies it has issued. The employee may not continue assisting 
    in the prosecution of the case unless he obtains an individual 
    waiver pursuant to section 208(b)(1).
    
        (g) Exemption for employment interests of special Government 
    employees serving on advisory committees. A special Government employee 
    serving on an advisory committee within the meaning of the Federal 
    Advisory Committee Act (5 U.S.C. app.) may participate in any 
    particular matter of general applicability where the disqualifying 
    financial interest arises from his non-Federal employment or non-
    Federal prospective employment, provided that the matter will not have 
    a special or distinct effect on the employee or employer other than as 
    part of a class. For purposes of this paragraph, ``disqualifying 
    financial interest'' arising from non-Federal employment does not 
    include the interests of a special Government employee arising from the 
    ownership of stock in his employer or prospective employer.
    
        Example 1: A chemist employed by a major pharmaceutical company 
    has been appointed to serve on an advisory committee established to 
    develop recommendations for new standards for AIDS vaccine trials 
    involving human subjects. Even though the chemist's employer is in 
    the process of developing an experimental AIDS vaccine and therefore 
    will be affected by the new standards, the chemist may participate 
    in formulating the advisory committee's recommendations. The 
    chemist's employer will be affected by the new standards only as 
    part of the class of all pharmaceutical companies and other research 
    entities that are attempting to develop an AIDS vaccine.
        Example 2: The National Cancer Institute (NCI) has established 
    an advisory committee to evaluate a university's performance of an 
    NCI grant to study the efficacy of a newly developed breast cancer 
    drug. An employee of the university may not participate in the 
    evaluation of the university's performance because it is not a 
    matter of general applicability.
        Example 3: An engineer whose principal employment is with a 
    major Department of Defense (DOD) contractor is appointed to serve 
    on an advisory committee established by DOD to develop concepts for 
    the next generation of laser-guided missiles. The engineer's 
    employer, as well as a number of other similar companies, has 
    developed certain missile components for DOD in the past, and has 
    the capability to work on aspects of the newer missile designs under 
    consideration by the committee. The engineer owns $20,000 worth of 
    stock in his employer. Because the exemption for the employment 
    interests of special Government employees serving on advisory 
    committees does not extend to financial interests arising from the 
    ownership of stock, the engineer may not participate in committee 
    matters affecting his employer unless he receives an individual 
    waiver under section 208(b)(1) or (b)(3), or determines whether the 
    exemption for interests in securities at Sec. 2640.202(b) applies.
    
        (h) Directors of Federal Reserve Banks. A Director of a Federal 
    Reserve Bank or a branch of a Federal Reserve Bank may participate in 
    the following matters, even though they may be particular matters in 
    which he, or any other person specified in section 208(a), has a 
    disqualifying financial interest:
        (1) Establishment of rates to be charged for all advances and 
    discounts by Federal Reserve Banks;
        (2) Consideration of monetary policy matters, regulations, statutes 
    and proposed or pending legislation, and other matters of broad 
    applicability intended to have uniform application to banks within the 
    Reserve Bank district;
        (3) Approval or ratification of extensions of credit, advances or 
    discounts to a depository institution that has not been determined to 
    be in a
    
    [[Page 66849]]
    
    hazardous financial condition by the President of the Reserve Bank; or
        (4) Approval or ratification of extensions of credit, advances or 
    discounts to a depository institution that has been determined to be in 
    a hazardous financial condition by the President of the Reserve Bank, 
    provided that the disqualifying financial interest arises from the 
    ownership of stock in, or service as an officer, director, trustee, 
    general partner or employee, of an entity other than the depository 
    institution, or its parent holding company or subsidiary of such 
    holding company.
        (i) Medical products. A special Government employee serving on an 
    advisory committee within the meaning of the Federal Advisory Committee 
    Act (5 U.S.C. app.) may participate in Federal advisory committee 
    matters concerning medical products if the disqualifying financial 
    interest arises from:
        (1) Employment with a hospital or other similar medical facility 
    whose only interest in the medical product or device is purchase of it 
    for use by, or sale to, its patients; or
        (2) The use or prescription of medical products for patients.
        (j) Nonvoting members of standing technical advisory committees 
    established by the Food and Drug Administration. A special Government 
    employee serving as a nonvoting representative member of an advisory 
    committee established by the Food and Drug Administration pursuant to 
    the requirements of the Federal Advisory Committee Act (5 U.S.C. app.) 
    and appointed under a statutory authority requiring the appointment of 
    representative members, may participate in any particular matter 
    affecting a disqualifying financial interest in the class which the 
    employee represents. Nonvoting representative members of Food and Drug 
    Administration advisory committees are described in 21 CFR 14.80(b)(2), 
    14.84, 14.86, and 14.95(a).
    
        Example 1: The FDA's Medical Devices Advisory Committee is 
    established pursuant to 21 U.S.C. 360c(b), which requires that each 
    panel of the Committee include one nonvoting industry representative 
    and one nonvoting consumer representative. An industry 
    representative on the Ophthalmic Devices Panel of this Committee has 
    been appointed as a special Government employee, in accordance with 
    the procedures described at 14 CFR 14.84. The special Government 
    employee may participate in Panel discussions concerning the 
    premarket approval application for a silicone posterior chamber 
    intraocular lens manufactured by MedInc, even though she is employed 
    by, and owns stock in, another company that manufactures a competing 
    product. However, a consumer representative who serves as a special 
    Government employee on the same Panel may not participate in Panel 
    discussions if he owns $30,000 worth of stock in MedInc unless he 
    first obtains an individual waiver under 18 U.S.C. 208 (b)(1) or 
    (b)(3).
    
        (k) Employees of the Tennessee Valley Authority. An employee of the 
    Tennessee Valley Authority (TVA) may participate in developing or 
    approving rate schedules or similar matters affecting the general cost 
    of electric power sold by TVA, if the disqualifying financial interest 
    arises from use of such power by the employee or by any other person 
    specified in section 208(a).
    
    
    Sec. 2640.204  Prohibited financial interests.
    
        None of the exemptions set forth in Secs. 2640.201, 2640.202, or 
    2640.203 apply to any financial interest held or acquired by an 
    employee, his spouse, or minor child in violation of a statute or 
    agency supplemental regulation issued in accordance with 5 CFR 
    2635.105, or that is otherwise prohibited under 5 CFR 2635.403(b).
    
        Example 1: The Office of the Comptroller of the Currency (OCC), 
    in a regulation that supplements part 2635 of this chapter, 
    prohibits certain employees from owning stock in commercial banks. 
    If an OCC employee purchases stock valued at $2,000 in contravention 
    of the regulation, the exemption at Sec. 2640.202(a) for interests 
    arising from the ownership of no more than $5,000 worth of publicly 
    traded stock will not apply to the employee's participation in 
    matters affecting the bank.
    
    
    Sec. 2640.205  Employee responsibility.
    
        Prior to taking official action in a matter which an employee knows 
    would affect his financial interest or the interest of another person 
    specified in 18 U.S.C. 208(a), an employee must determine whether one 
    of the exemptions in Secs. 2640.201, 2640.202, or 2640.203 would permit 
    his action notwithstanding the existence of the disqualifying interest. 
    An employee who is unsure whether an exemption is applicable in a 
    particular case, should consult an agency ethics official prior to 
    taking action in a particular matter.
    
    
    Sec. 2640.206  Existing agency exemptions.
    
        An employee who, prior to January 17, 1997, acted in an official 
    capacity in a particular matter in which he had a financial interest, 
    will be deemed to have acted in accordance with applicable regulations 
    if he acted in reliance on an exemption issued by his employing 
    Government agency pursuant to 18 U.S.C. 208(b)(2), as in effect prior 
    to November 30, 1989.
    
    Subpart C--Individual Waivers
    
    
    Sec. 2640.301  Waivers issued pursuant to 18 U.S.C. 208(b)(1).
    
        (a) Requirements for issuing an individual waiver under 18 U.S.C. 
    208(b)(1). Pursuant to 18 U.S.C. 208(b)(1), an agency may determine in 
    an individual case that a disqualifying financial interest in a 
    particular matter or matters is not so substantial as to be deemed 
    likely to affect the integrity of the employee's services to the 
    Government. Upon making that determination, the agency may then waive 
    the employee's disqualification notwithstanding the financial interest, 
    and permit the employee to participate in the particular matter. 
    Waivers issued pursuant to section 208(b)(1) should comply with the 
    following requirements:
        (1) The disqualifying financial interest, and the nature and 
    circumstances of the particular matter or matters, must be fully 
    disclosed to the Government official responsible for appointing the 
    employee to his position (or other Government official to whom 
    authority to issue such a waiver for the employee has been delegated);
        (2) The waiver must be issued in writing by the Government official 
    responsible for appointing the employee to his position (or other 
    Government official to whom the authority to issue such a waiver for 
    the employee has been delegated);
        (3) The waiver should describe the disqualifying financial 
    interest, the particular matter or matters to which it applies, the 
    employee's role in the matter or matters, and any limitations on the 
    employee's ability to act in such matters;
        (4) The waiver shall be based on a determination that the 
    disqualifying financial interest is not so substantial as to be deemed 
    likely to affect the integrity of the employee's services to the 
    Government. Statements concerning the employee's good character are not 
    material to, nor a basis for making, such a decision;
        (5) The waiver must be issued prior to the employee taking any 
    action in the matter or matters; and
        (6) The waiver may apply to both present and future financial 
    interests, provided the interests are described with sufficient 
    specificity.
    
        Note to paragraph (a): The disqualifying financial interest, the 
    particular matter or matters to which the waiver applies, and the 
    employee's role in such matters do not need to be described with any 
    particular degree of specificity. For example, if a waiver were to 
    apply to all matters which an employee would undertake as part of 
    his official duties,
    
    [[Page 66850]]
    
    the waiver document would not have to enumerate those duties. The 
    information contained in the waiver, however, should provide a clear 
    understanding of the nature and identity of the disqualifying 
    financial interest, the matters to which the waiver will apply, and 
    the employee's role in such matters.
    
        (b) Agency determination concerning substantiality of the 
    disqualifying financial interest. In determining whether a 
    disqualifying financial interest is sufficiently substantial to be 
    deemed likely to affect the integrity of the employee's services to the 
    Government, the responsible official may consider the following 
    factors:
        (1) The type of interest that is creating the disqualification 
    (e.g. stock, bonds, real estate, other securities, cash payment, job 
    offer, or enhancement of a spouse's employment);
        (2) The identity of the person whose financial interest is 
    involved, and if the interest is not the employee's, the relationship 
    of that person to the employee;
        (3) The dollar value of the disqualifying financial interest, if it 
    is known or can be estimated (e.g. the amount of cash payment which may 
    be gained or lost, the salary of the job which will be gained or lost, 
    the predictable change in either the market value of the stock or the 
    actual or potential profit or loss or cost of the matter to the company 
    issuing the stock, the change in the value of real estate or other 
    securities);
        (4) The value of the financial instrument or holding from which the 
    disqualifying financial interest arises (e.g. the face value of the 
    stock, bond, other security or real estate) and its value in 
    relationship to the individual's assets. If the disqualifying financial 
    interest is that of a general partner or organization specified in 
    section 208, this information must be provided only to the extent that 
    it is known by the employee; and
        (5) The nature and importance of the employee's role in the matter, 
    including the extent to which the employee is called upon to exercise 
    discretion in the matter.
        (6) Other factors which may be taken into consideration include:
        (i) The sensitivity of the matter;
        (ii) The need for the employee's services in the particular matter; 
    and
        (iii) Adjustments that may be made in the employee's duties that 
    would reduce or eliminate the likelihood that the integrity of the 
    employee's services would be questioned by a reasonable person.
    
    
    Sec. 2640.302  Waivers issued pursuant to 18 U.S.C. 208(b)(3).
    
        (a) Requirements for issuing an individual waiver under 18 U.S.C. 
    208(b)(3). Pursuant to 18 U.S.C. 208(b)(3), an agency may determine in 
    an individual case that the prohibition of 18 U.S.C. 208(a) should not 
    apply to a special Government employee serving on, or an individual 
    being considered for, appointment to an advisory committee established 
    under the Federal Advisory Committee Act, notwithstanding the fact that 
    the individual has one or more financial interests that would be 
    affected by the activities of the advisory committee. The agency's 
    determination must be based on a certification that the need for the 
    employee's services outweighs the potential for a conflict of interest 
    created by the financial interest involved. Waivers issued pursuant to 
    18 U.S.C. 208(b)(3) should comply with the following requirements:
        (1) The advisory committee upon which the individual is serving, or 
    will serve, is an advisory committee within the meaning of the Federal 
    Advisory Committee Act, 5 U.S.C. app.;
        (2) The waiver must be issued in writing by the Government official 
    responsible for the individual's appointment (or other Government 
    official to which authority to issue such waivers has been delegated) 
    after the official reviews the financial disclosure report filed by the 
    individual pursuant to the Ethics in Government Act of 1978;
        (3) The waiver must include a certification that the need for the 
    individual's services on the advisory committee outweighs the potential 
    for a conflict of interest;
        (4) The facts upon which the certification is based should be fully 
    described in the waiver, including the nature of the financial 
    interest, and the particular matter or matters to which the waiver 
    applies;
        (5) The waiver should describe any limitations on the individual's 
    ability to act in the matter or matters;
        (6) The waiver must be issued prior to the individual taking any 
    action in the matter or matters; and
        (7) The waiver may apply to both present and future financial 
    interests of the individual, provided the interests are described with 
    sufficient specificity.
        (b) Agency certification concerning need for individual's services. 
    In determining whether the need for an individual's services on an 
    advisory committee outweighs the potential for a conflict of interest 
    created by the disqualifying financial interest, the responsible 
    official may consider the following factors:
        (1) The type of interest that is creating the disqualification 
    (e.g. stock, bonds, real estate, other securities, cash payment, job 
    offer, or enhancement of a spouse's employment);
        (2) The identity of the person whose financial interest is 
    involved, and if the interest is not the individual's, the relationship 
    of that person to the individual;
        (3) The uniqueness of the individual's qualifications;
        (4) The difficulty of locating a similarly qualified individual 
    without a disqualifying financial interest to serve on the committee;
        (5) The dollar value of the disqualifying financial interest, if it 
    is known or can be estimated (e.g. the amount of cash payment which may 
    be gained or lost, the salary of the job which will be gained or lost, 
    the predictable change in either the market value of the stock or the 
    actual or potential profit or loss or cost of the matter to the company 
    issuing the stock, the change in the value of real estate or other 
    securities);
        (6) The value of the financial instrument or holding from which the 
    disqualifying financial interest arises (e.g. the face value of the 
    stock, bond, other security or real estate) and its value in 
    relationship to the individual's assets. If the disqualifying financial 
    interest is that of a general partner or organization specified in 
    section 208, this information must be provided only to the extent that 
    it is known by the employee; and
        (7) The extent to which the disqualifying financial interest will 
    be affected individually or particularly by the actions of the advisory 
    committee.
    
    
    Sec. 2640.303  Consultation and notification regarding waivers.
    
        When practicable, an official is required to consult formally or 
    informally with the Office of Government Ethics prior to granting a 
    waiver referred to in Secs. 2640.301 and 2640.302. A copy of each such 
    waiver is to be forwarded to the Director of the Office of Government 
    Ethics.
    
    
    Sec. 2640.304  Public availability of agency waivers.
    
        (a) Availability. A copy of an agency waiver issued pursuant to 18 
    U.S.C. 208 (b)(1) or (b)(3) shall be made available upon request to the 
    public by the issuing agency. Public release of waivers shall be in 
    accordance with the procedures set forth in section 105 of the Ethics 
    in Government Act of 1978, as amended. Those procedures are described 
    in 5 CFR 2634.603.
    
    [[Page 66851]]
    
        (b) Limitations on availability. In making a waiver issued pursuant 
    to 18 U.S.C. 208 (b)(1) or (b)(3) publicly available, an agency:
        (1) May withhold from public disclosure any information contained 
    in the waiver that would be exempt from disclosure pursuant to 5 U.S.C. 
    552; and
        (2) Shall withhold from public disclosure information in a waiver 
    issued pursuant to 18 U.S.C. 208(b)(3) concerning an individual's 
    financial interest which is more extensive than that required to be 
    disclosed by the individual in his financial disclosure report under 
    the Ethics in Government Act of 1978, as amended, or which is otherwise 
    subject to a prohibition on public disclosure under law.
    
    [FR Doc. 96-31837 Filed 12-17-96; 8:45 am]
    BILLING CODE 6345-01-P
    
    
    

Document Information

Effective Date:
1/17/1997
Published:
12/18/1996
Department:
Government Ethics Office
Entry Type:
Rule
Action:
Final rule.
Document Number:
96-31837
Dates:
January 17, 1997.
Pages:
66830-66851 (22 pages)
RINs:
3209-AA09: Interpretation, Exemptions, and Waiver Guidance Concerning Acts Affecting a Personal Financial Interest
RIN Links:
https://www.federalregister.gov/regulations/3209-AA09/interpretation-exemptions-and-waiver-guidance-concerning-acts-affecting-a-personal-financial-interes
PDF File:
96-31837.pdf
CFR: (23)
5 CFR 2640.202(a)
5 CFR 2640.203(b)
5 CFR 2640.202(d)
5 CFR 2640.203(d)
5 CFR 2640.103(e)
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