[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45760-45762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21662]
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LEGAL SERVICES CORPORATION
45 CFR Part 1640
Application of Federal Law to LSC Recipients
AGENCY: Legal Services Corporation.
ACTION: Interim rule with request for comments.
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SUMMARY: This interim rule implements a provision in the Legal Services
Corporation's (``Corporation'' or ``LSC'') FY 1996 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. Although this rule
is effective upon publication, the Corporation also solicits public
comment on the interim rule in anticipation of adoption of a final rule
at a later time.
DATES: This interim rule is effective on August 29, 1996. Comments must
be submitted on or before October 28, 1996.
ADDRESSES: Comments should be submitted to the Office of the General
Counsel, Legal Services Corporation, 750 First St NE., 11th Floor,
Washington, DC 20002-4250.
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 requires LSC-funded
recipients to agree by contract that, with regard to their use of LSC
funds, they will 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 this interim rule on July 20 for
publication in the Federal Register. The Committee recommended and the
Board agreed to publish this rule as an interim rule. An interim rule
is necessary in order to provide prompt and critically necessary
guidance to LSC recipients on legislation which is already effective
and which carries strong penalties for noncompliance. Because of the
great need for guidance on how to comply with substantially revised
legislative requirements, prior notice and public comment are
impracticable, unnecessary, and contrary to the public interest. See 5
U.S.C. 553(b)(3)(B) and 553(d)(3). Accordingly, this rule is effective
upon publication.
However, the Corporation also solicits public comment on the rule
for review and consideration by the Committee. The Committee intends to
hold public hearings to discuss written comments and hear oral
comments. It is anticipated that a final rule will be issued which will
supersede this interim rule.
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 interim rule is provided
below.
Section 1640.1 Purpose
The purpose of this 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.
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 (HR 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 responsibility for 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 in regard to LSC 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 its 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
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language authorizes the application to the Corporation's recipients of
Federal law on the proper use of Federal funds.
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 both
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 the Inspector General 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
Inspector General investigates reports of possible theft or
misappropriation of a recipient's non-LSC funds as well as its LSC
funds and would report any such thefts or misappropriations that it
found to the appropriate Federal or State authorities.
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 termination 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 imput
responsibility for the violation to the recipient, the law requires
that the grant or contract be terminated by the Corporation.
In any case, the Corporation has the authority and responsibility
to take the steps necessary to safeguard its funds.
Section 1640.5 Reporting Requirement
This section requires 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 clarifies 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. A recipient must also
give the Corporation notice within two (2) days if it has reason to
believe that any of its employees or board members have misused LSC
funds under this part. Finally, this section requires a recipient to
follow up the telephonic or other actual notice with a written notice
within ten (10) calendar days.
List of Subjects in 45 CFR Part 1640.
Fraud; Grant programs-law; Legal services.
For reasons set forth in the preamble, 45 CFR Chapter XVI is
amended by adding part 1640 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.
1640.5 Reporting requirement.
Authority: Pub. L. 104-134, 110 Stat. 1321.
Sec. 1640.1 Purpose.
The purpose of this rule is to ensure that recipients use their LSC
funds in accordance with Federal law related to the proper use of
Federal funds. This rule also identifies the Federal laws which apply
and provides notice of the consequences to a recipient of a violation
of such Federal laws by recipients, 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 Sec. 3730(b) of such title 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), 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 Sec. 1640.2(a)(1), 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 Sec. 1640.2(a)(1) 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.
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,
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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 termination
hearing, the Corporation may take such steps as it determines necessary
to safeguard its funds.
Sec. 1640.5 Reporting requirement.
(a) The recipient shall give telephonic or other actual notice to
the Corporation within two (2) working days of the date that:
(1) The recipient or any of the recipient's employees has been
charged with a violation of any of the Federal laws listed in
Sec. 1640.2(a) with respect to its LSC funds; or
(2) It has reason to believe that any of its employees or board
members have misused the recipient's LSC funds in violation of any of
the Federal laws listed in Sec. 1640.2(a).
(b) The notice required in paragraph (a) of this section shall be
followed by written notice within ten (10) calendar days.
(c) A recipient or an employee or board member of the recipient has
been ``charged with a violation'' when a governmental entity having
authority to initiate such a proceeding has instituted action against
the recipient or the recipient's employee and the proceeding is
pending.
Dated: August 20, 1996.
Suzanne B. Glasow,
Senior Counsel for Operations & Regulations.
[FR Doc. 96-21662 Filed 8-28-96; 8:45 am]
BILLING CODE 7050-01-P
