[Federal Register Volume 62, Number 76 (Monday, April 21, 1997)]
[Rules and Regulations]
[Pages 19424-19427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10039]
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LEGAL SERVICES CORPORATION
45 CFR Part 1640
Application of Federal Law to LSC Recipients
AGENCY: Legal Services Corporation.
ACTION: Final rule.
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SUMMARY: This final rule implements a provision in the Legal Services
Corporation's (``Corporation'' or ``LSC'') FY 1996 appropriations act
that is currently incorporated by reference in the Corporation's FY
1997 appropriations act, which subjects LSC recipients to Federal law
relating to the proper use of Federal funds. This rule identifies
applicable Federal law and sets out the mechanism by which recipients
must agree to be subject to such law and the consequences of a
violation of the law.
EFFECTIVE DATE: May 21, 1997.
FOR FURTHER INFORMATION CONTACT: Victor M. Fortuno, General Counsel,
(202) 336-8910.
SUPPLEMENTARY INFORMATION: On May 19, 1996, the Operations and
Regulations Committee (``Committee'') of the LSC Board of Directors
(``Board'') requested the LSC staff to prepare an interim rule to
implement Sec. 504(a)(19) of Public Law 104-134, 110 Stat. 1321(1996),
the Corporation's FY 1996 appropriations act, which required LSC-funded
recipients to agree by contract that, with regard to their use of LSC
funds, they would be subject to Federal law related to the proper use
of Federal funds. The Committee held hearings on staff proposals on
July 9 and 19, and the Board adopted an interim rule on July 20 for
publication in the Federal Register. The interim rule was published on
August 29, 1996, at 61 FR 45760.
The Corporation received five timely public comments on the rule
and held public hearings on December 13, 1996 and January 5, 1997, to
discuss written comments and hear oral comments. The Committee made
changes and recommended a final rule to the Board which adopted the
Committee's recommendation on January 6, 1997 for publication as a
final rule.
The Corporation's FY 1997 appropriations act became effective on
October 1, 1996, see Pub. L. 104-208, 110 Stat. 3009 (1996). It
incorporated by reference the Sec. 504 condition on LSC grants included
in the FY 1996 appropriations act implemented by this rule.
Accordingly, the preamble and text of this rule continue to refer to
the appropriate section number of the FY 1996 appropriations act.
Briefly, this rule requires LSC recipients to agree to be subject
to ``Federal laws relating to the proper use of Federal funds'' in
their use of LSC funds. This rule puts recipients and their employees
on notice that LSC funds are Federal funds for the purposes of the
applicable Federal laws cited in this rule and that a violation of such
laws would subject the recipient or individual employee to potentially
serious sanctions.
A section by section analysis of this final rule is provided below.
Section 1640.1 Purpose
The purpose of this final rule is to ensure that recipients' LSC
funds are considered Federal funds for the purposes of Federal law
relating to the proper use of Federal funds. This rule also identifies
applicable Federal laws and delineates the consequences to the
recipient of violations of such law.
[[Page 19425]]
Section 1640.2 Definitions
The statutory restriction provides that recipients must
contractually agree to be subject to ``all provisions of Federal law
relating to the proper use of Federal funds'' with regard to their use
of LSC funds. The regulation interprets this to mean that, with respect
to their LSC funds, all programs should be subject to Federal laws
which address issues of waste, fraud and abuse of Federal funds. The
legislative history limits the applicable laws to those dealing with
waste, fraud and abuse and specifically names the laws which apply. The
House Report for H.R. 2076, an earlier unsuccessful effort to enact a
provision similar to the provision that was ultimately enacted, states:
[S]ection 504(2) requires all programs receiving Federal funds
to comply with Federal statutes and regulations governing waste,
fraud, and abuse of Federal funds.
H. Rep. No.______, 104th Cong., 1st Sess. 116 (July 1995). See also the
McCollum/Stenholm bill (H.R. 1806), a recent effort to amend the LSC
Act, which expressly cites most of the laws included in this part.
Other laws have been added after consultation with the Corporation's
Office of the Inspector General, one of whose statutory mandates is to
prevent the misuse of LSC funds.
The relevant laws are listed in the definition of ``Federal law
relating to the proper use of Federal funds'' in paragraph (a)(1) of
this section. Generally, such laws deal with the bribery of public
officials or witnesses; the embezzlement or theft of Federal funds;
attempts to defraud the government; the obstruction of Federal audits;
and making false statements and claims to the Federal government. One
exception makes it clear that qui tam actions authorized by section
3730(b) of Title 31 may not be brought against the Corporation, any
recipient, subrecipient, grantee, or contractor of the Corporation, or
any employee thereof.
Paragraph (a)(2) clarifies that for the purposes of the laws cited
in paragraph (a)(1), the Corporation shall be considered a Federal
agency and its funds shall be considered to be Federal funds provided
by grant or contract.
Paragraph (b) of this section defines the meaning of a ``violation
of the agreement.'' A violation of a recipient's agreement to be
subject to Federal law related to the proper use of Federal funds could
occur in either of two ways. First, there would be a violation if the
recipient were convicted of or judgment were entered against it for a
violation of any of the relevant Federal laws by the Federal court
having jurisdiction of the matter, and all appeals were final or the
time to file for an appeal had expired.
Second, there would be a violation if an employee or board member
of the recipient were convicted of a violation of the enumerated laws
and the Corporation found that the offense should be imputed to the
recipient because the recipient had knowingly or through gross
negligence allowed the illegal activities to occur.
Section 1640.3 Contractual Agreement
This section implements the statutory requirement that, as a
condition of receiving a grant or contract with the Corporation,
recipients must enter into a contractual agreement that, in regard to
LSC funds, they will be subject to Federal law relating to the proper
use of Federal funds. The Federal laws in question normally apply to
Federal agencies and Federal funds. Because the Corporation is not a
Federal agency, it was necessary for Congress to provide in
Sec. 504(a)(19) of the Corporation's FY 1996 appropriations act that,
for purposes of the application of these laws to recipients, the
Corporation shall be considered to be a Federal agency and all funds
provided by the Corporation shall be Federal funds provided by grant or
contract. This language authorizes the application of Federal law on
the proper use of Federal funds to the Corporation's recipients.
This provision also requires that the agreement include a statement
that the recipient's employees and board members have been informed of
the applicable Federal laws and the potential consequences to them
personally and to the recipient if the law is violated. Thus,
recipients should familiarize their staff and board with the Federal
laws listed in this part and the significance of the agreement made by
the recipient. The agreement and Sec. 504(a)(19) mean that, in regard
to its LSC funds, the recipient, its board members, and its employees
could be subject to Federal criminal prosecution and civil false claims
liability for a violation of the Federal statutes listed in this part.
Recipients should also be mindful of the fact that the
Corporation's Office of Inspector General (``OIG'') has statutory
responsibility to investigate the activities covered by the Federal
laws listed in this part. Although the agreement would apply only to
LSC funds, recipients are also reminded that the Corporation's OIG
investigates reports of possible theft or misappropriation of a
recipient's non-LSC funds as well as its LSC funds.
Section 1640.4 Violation of Agreement
Paragraph (a) provides that a violation of the agreement as defined
in this part would render a recipient's grant or contract terminated by
the Corporation. Section 504(a)(19) clearly evidences Congressional
intent that a recipient's funding be terminated if there is a violation
of the applicable Federal law. Because a violation pursuant to
Sec. 1640.2(b)(1) requires a recipient to have been found by a court of
law to have violated the applicable Federal law, the Corporation would
not be obligated to provide a hearing. For a Sec. 1640.2(b)(2)
violation, on the other hand, prior to any termination, the Corporation
would be obligated to provide notice and an opportunity to be heard for
the sole purpose of determining whether a recipient knowingly or
through gross negligence allowed the illegal activities to occur. Once
a final decision has been made to impute the violation to the
recipient, the law requires that the grant or contract be terminated by
the Corporation.
Comments on this section questioned whether it provides sufficient
due process rights when there had been a finding by the appropriate
court of a violation of applicable Federal law. When a court finds that
a recipient had violated the law, the rule provides that the
Corporation will terminate the recipient's grant without a hearing.
When the appropriate court finds that either a recipient's employee or
board member has violated the law, a hearing is required prior to
termination of the recipient's grant only on the issue of whether guilt
for the violation may be imputed to the recipient because the recipient
knowingly or through gross negligence allowed the activities that led
to the violation. Comments requested that the rule clarify that the
termination proceedings in 45 CFR part 1606 would be provided in such a
hearing.
The Board disagreed. Section 504(a)(19) clearly intends that once
there has been a finding of a violation of the applicable Federal law,
the Corporation must terminate the grant. Section 504(a) (19) provides
that a violation of the applicable law ``shall render any grant or
contractual agreement to provide funding null and void.'' The
legislative history of this provision provides that ``any violations of
federal laws shall result in termination of the contract.'' Conf. Rep.
to H.R. 2076. Unlike other violations of LSC requirements, a violation
of the applicable Federal law at issue in this rule is determined by a
court having jurisdiction of the matter. It is not
[[Page 19426]]
determined under the administrative hearing rights required by Section
1011 of the LSC Act or the Corporation's rule on terminations, 45 CFR
part 1606. Congress used very strong language in Sec. 504(a)(19) by
stating that a violation would require that a grant or contract would
be ``null and void,'' which indicates to the Corporation that the
provision overrides Section 1011 of the LSC Act. However, because the
Corporation does not automatically impute guilt for a violation by a
recipient employee or board member to a recipient, it has determined to
provide a fair hearing to make a determination whether guilt should be
imputed to the recipient. However, the Corporation does not intend that
part 1606 hearing rights would be used in such a situation.
Accordingly, the use of ``termination hearing'' in this section does
not refer to a termination hearing under 45 CFR part 1606.
One comment expressed concern about a clause appearing in
Secs. 1640.4 (a) and (b), which provides that ``During the pendency of
any appeal * * * the Corporation may take such steps as it determines
necessary to safeguard its funds.'' The comment expressed concern that
the Corporation may take steps that would undercut an appeal by
prematurely terminating the operations of a recipient through immediate
action, making funds completely inaccessible to the recipient. The
comment suggested that the Corporation clarify that the purpose of the
provision is to safeguard Corporation funds in the possession of the
recipient without interfering with the capacity of clients to receive
legal assistance.
The Corporation cannot anticipate that there would never be a
situation where it is necessary to act immediately to make LSC funds
unavailable to a recipient and, thereby, potentially interfere with a
recipient's capacity to provide ongoing legal assistance activities.
However, the Corporation is dedicated to ensuring the continued
provision of legal assistance in each service area and would utilize
the least intrusive actions necessary while protecting LSC funds and
ensuring that recipients' appeal rights are not undercut. Under this
final rule, the Corporation continues to have the authority and
responsibility to take the steps necessary to safeguard its funds.
Section 1640.5 Deleted
The interim rule included a Sec. 1640.5 on reporting requirements.
It required a recipient to give telephonic or other actual notice to
the Corporation within two (2) working days when the recipient or any
of its employees or board members have been charged with a violation of
any of the Federal laws listed in Sec. 1640.2(a). It also clarified
that ``charged with a violation'' means that an individual or
governmental entity having authority to initiate such proceedings has
initiated action against the recipient or its employees or board
members and the proceeding is pending. It also required the recipient
to report when the recipient had reason to believe that any of its
employees or board members have misused LSC funds under this part.
Comments stated that the 2-day notice requirement in Sec. 1640.5(a)
was too short and that recipients needed more time to make a rational
determination that there was an actual reason to believe that there had
been a misuse of LSC funds in violation of the applicable Federal laws.
The comments also expressed confusion on the meaning of the standard
for reporting, which required a recipient to report when it had
``reason to believe'' that there has been a violation. The Committee
decided to delete the entire section at the recommendation of the OIG.
The OIG will rely on the good faith of the grantees and other existing
means for obtaining notice of the existence of a potential problem.
List of Subjects in 45 CFR Part 1640
Grant programs; Legal services.
For reasons set forth in the preamble, 45 CFR Part 1640 is revised
as follows:
PART 1640--APPLICATION OF FEDERAL LAW TO LSC RECIPIENTS
Sec.
1640.1 Purpose.
1640.2 Definitions.
1640.3 Contractual agreement.
1640.4 Violation of agreement.
Authority: Sec. 504(a)(19), Pub. L. 104-208, 110 Stat. 3009;
Pub. L. 104-134, 110 Stat. 1321.
Sec. 1640.1 Purpose.
The purpose of this part is to ensure that recipients use their LSC
funds in accordance with Federal law related to the proper use of
Federal funds. This part also identifies the Federal laws which apply,
and it provides notice of the consequences to a recipient of a
violation of such Federal laws by a recipient, its employees or board
members.
Sec. 1640.2 Definitions.
(a)(1) Federal law relating to the proper use of Federal funds
means:
(i) 18 U.S.C. 201(Bribery of Public Officials and Witnesses);
(ii) 18 U.S.C. 286 (Conspiracy to Defraud the Government With
Respect to Claims);
(iii) 18 U.S.C. 287 (False, Fictitious or Fraudulent Claims);
(iv) 18 U.S.C. 371 (Conspiracy to Commit Offense or Defraud the
United States);
(v) 18 U.S.C. 641 (Public Money, Property or Records);
(vi) 18 U.S.C. 1001 (Statements or Entries Generally);
(vii) 18 U.S.C. 1002 (Possession of False Papers to Defraud the
United States);
(viii) 18 U.S.C. 1516 (Obstruction of Federal Audit);
(ix) 31 U.S.C. 3729 (False Claims);
(x) 31 U.S.C. 3730 (Civil Actions for False Claims), except that
actions that are authorized by 31 U.S.C. 3730(b) to be brought by
persons may not be brought against the Corporation, any recipient,
subrecipient, grantee, or contractor of the Corporation, or any
employee thereof;
(xi) 31 U.S.C. 3731 (False Claims Procedure);
(xii) 31 U.S.C. 3732 (False Claims Jurisdiction); and
(xiii) 31 U.S.C. 3733 (Civil Investigative Demands).
(2) For the purposes of the laws listed in paragraph (a)(1) of this
section, LSC shall be considered a Federal agency and a recipient's LSC
funds shall be considered to be Federal funds provided by grant or
contract.
(b) A violation of the agreement means:
(1) That the recipient has been convicted of, or judgment has been
entered against the recipient for, a violation of any of the laws
listed in paragraph (a)(1) of this section, with respect to its LSC
grant or contract, by the court having jurisdiction of the matter, and
any appeals of the conviction or judgment have been exhausted or the
time for the appeal has expired; or
(2) An employee or board member of the recipient has been convicted
of, or judgment has been entered against the employee or board member
for, a violation of any of the laws listed in paragraph (a)(1) of this
section with respect to a recipient's grant or contract with LSC by the
court having jurisdiction of the matter, and any appeals of the
conviction or judgment have been exhausted or the time for appeal has
expired, and the Corporation finds that the recipient has knowingly or
through gross negligence allowed the employee or board member to engage
in such activities.
[[Page 19427]]
Sec. 1640.3 Contractual agreement.
As a condition of receiving LSC funds, a recipient must enter into
a written contractual agreement with the Corporation that, with respect
to its LSC funds, it will be subject to the Federal laws listed in
Sec. 1640.2(a)(1). The agreement shall include a statement that all of
the recipient's employees and board members have been informed of such
Federal law and of the consequences of a violation of such law, both to
the recipient and to themselves as individuals.
Sec. 1640.4 Violation of agreement.
(a) A violation of the agreement under Sec. 1640.2(b)(1) shall
result in the recipient's LSC grant or contract being terminated by the
Corporation without need for a termination hearing. During the pendency
of any appeal of a conviction or judgment, the Corporation may take
such steps as it determines necessary to safeguard its funds.
(b) A violation of the agreement under Sec. 1640.2(b)(2) shall
result in the recipient's LSC grant or contract being terminated by the
Corporation. Prior to such termination, the Corporation shall provide
notice and an opportunity to be heard for the sole purpose of
determining whether the recipient knowingly or through gross negligence
allowed the employee or board member to engage in the activities which
led to the conviction or judgment. During the pendency of any appeal of
a conviction or judgment or during the pendency of a hearing, the
Corporation may take such steps as it determines necessary to safeguard
its funds.
Dated: April 14, 1997.
Victor M. Fortuno,
General Counsel.
[FR Doc. 97-10039 Filed 4-18-97; 8:45 am]
BILLING CODE 7050-01-P
