Office of Government Ethics § 2635.402 § 2635.402 Disqualifying financial in- NOTE: If a particular matter involves a spe- terests. cific party or parties, generally the matter will at most only have a direct and predict- (a) Statutory prohibition. An employee able effect, for purposes of this subpart, on a is prohibited by criminal statute, 18 financial interest of the employee in or with U.S.C. 208(a), from participating per- a party, such as the employee’s interest by sonally and substantially in an official virtue of owning stock. There may, however, be some situations in which, under the above capacity in any particular matter in standards, a particular matter will have a di- which, to his knowledge, he or any per- rect and predictable effect on an employee’s son whose interests are imputed to him financial interests in or with a nonparty. For under this statute has a financial in- example, if a party is a corporation, a par- terest, if the particular matter will ticular matter may also have a direct and have a direct and predictable effect on predictable effect on an employee’s financial interests through ownership of stock in an that interest. affiliate, parent, or subsidiary of that party. NOTE: Standards applicable when seeking Similarly, the disposition of a protest non-Federal employment are contained in against the award of a contract to a par- subpart F of this part and, if followed, will ticular company may also have a direct and ensure that an employee does not violate 18 predictable effect on an employee’s financial U.S.C. 208(a) or this section when he is nego- interest in another company listed as a sub- tiating for or has an arrangement concerning contractor in the proposal of one of the com- future employment. In all other cases where peting offerors. the employee’s participation would violate Example 1: An employee of the National Li- 18 U.S.C. 208(a), an employee shall disqualify brary of Medicine at the National Institutes himself from participation in the matter in of Health has just been asked to serve on the accordance with paragraph (c) of this section technical evaluation panel to review pro- or obtain a waiver or determine that an ex- posals for a new library computer search sys- emption applies, as described in paragraph tem. DEF Computer Corporation, a closely (d) of this section. held company in which he and his wife own a majority of the stock, has submitted a pro- (b) Definitions. For purposes of this posal. Because award of the systems contract section, the following definitions shall to DEF or to any other offeror will have a di- apply: rect and predictable effect on both his and (1) Direct and predictable effect. (i) A his wife’s financial interests, the employee particular matter will have a direct ef- cannot participate on the technical evalua- tion team unless his disqualification has fect on a financial interest if there is a been waived. close causal link between any decision Example 2: Upon assignment to the tech- or action to be taken in the matter and nical evaluation panel, the employee in the any expected effect of the matter on preceding example finds that DEF Computer the financial interest. An effect may be Corporation has not submitted a proposal. direct even though it does not occur Rather, LMN Corp., with which DEF com- immediately. A particular matter will petes for private sector business, is one of not have a direct effect on a financial the six offerors. The employee is not dis- qualified from serving on the technical eval- interest, however, if the chain of causa- uation panel. Any effect on the employee’s tion is attenuated or is contingent financial interests as a result of the agency’s upon the occurrence of events that are decision to award or not award the systems speculative or that are independent of, contract to LMN would be at most indirect and unrelated to, the matter. A par- and speculative. ticular matter that has an effect on a (2) Imputed interests. For purposes of financial interest only as a con- 18 U.S.C. 208(a) and this subpart, the fi- sequence of its effects on the general nancial interests of the following per- economy does not have a direct effect sons will serve to disqualify an em- within the meaning of this subpart. ployee to the same extent as if they (ii) A particular matter will have a were the employee’s own interests: predictable effect if there is a real, as (i) The employee’s spouse; opposed to a speculative possibility (ii) The employee’s minor child; that the matter will affect the finan- (iii) The employee’s general partner; WReier-Aviles on DSKGBLS3C1PROD with CFR cial interest. It is not necessary, how- (iv) An organization or entity which ever, that the magnitude of the gain or the employee serves as officer, direc- loss be known, and the dollar amount tor, trustee, general partner or em- of the gain or loss is immaterial. ployee; and 585 VerDate Mar<15>2010 12:53 Feb 14, 2011 Jkt 223010 PO 00000 Frm 00597 Fmt 8010 Sfmt 8010 Y:\SGML\223010.XXX 223010 § 2635.402 5 CFR Ch. XVI (1–1–11 Edition) (v) A person with whom the employee diverse group of persons. The par- is negotiating for or has an arrange- ticular matters covered by this subpart ment concerning prospective employ- include a judicial or other proceeding, ment. (Employees who are seeking application, request for a ruling or other employment should refer to and other determination, contract, claim, comply with the standards in subpart F controversy, charge, accusation or ar- of this part). rest. Example 1: An employee of the Department Example 1: The Internal Revenue Service’s of Education serves without compensation amendment of its regulations to change the on the board of directors of Kinder World, manner in which depreciation is calculated Inc., a nonprofit corporation that engages in is not a particular matter, nor is the Social good works. Even though her personal finan- Security Administration’s consideration of cial interests will not be affected, the em- changes to its appeal procedures for dis- ployee must disqualify herself from partici- ability claimants. pating in the review of a grant application Example 2: Consideration by the Interstate submitted by Kinder World. Award or denial Commerce Commission of regulations estab- of the grant will affect the financial inter- lishing safety standards for trucks on inter- ests of Kinder World and its financial inter- state highways involves a particular matter. ests are imputed to her as a member of its board of directors. (4) Personal and substantial. To par- Example 2: The spouse of an employee of ticipate personally means to partici- the Food and Drug Administration has ob- pate directly. It includes the direct and tained a position with a well established bio- active supervision of the participation medical research company. The company has developed an artificial limb for which it is of a subordinate in the matter. To par- seeking FDA approval and the employee ticipate substantially means that the would ordinarily be asked to participate in employee’s involvement is of signifi- the FDA’s review and approval process. The cance to the matter. Participation may spouse is a salaried employee of the company be substantial even though it is not de- and has no direct ownership interest in the terminative of the outcome of a par- company. Nor does she have an indirect own- ticular matter. However, it requires ership interest, as would be the case, for ex- ample, if she were participating in a pension more than official responsibility, plan that held stock in the company. Her po- knowledge, perfunctory involvement, sition with the company is such that the or involvement on an administrative or granting or withholding of FDA approval peripheral issue. A finding of substan- will not have a direct and predictable effect tiality should be based not only on the on her salary or on her continued employ- effort devoted to a matter, but also on ment with the company. Since the FDA ap- the importance of the effort. While a proval process will not affect his spouse’s fi- nancial interests, the employee is not dis- series of peripheral involvements may qualified under § 2635.402 from participating be insubstantial, the single act of ap- in that process. Nevertheless, the financial proving or participating in a critical interests of the spouse’s employer may be step may be substantial. Personal and disqualifying under the impartiality prin- substantial participation may occur ciple, as implemented at § 2635.502. when, for example, an employee par- (3) Particular matter. The term par- ticipates through decision, approval, ticular matter encompasses only mat- disapproval, recommendation, inves- ters that involve deliberation, decision, tigation or the rendering of advice in a or action that is focused upon the in- particular matter. terests of specific persons, or a discrete (c) Disqualification. Unless the em- and identifiable class of persons. Such ployee is authorized to participate in a matter is covered by this subpart the particular matter by virtue of a even if it does not involve formal par- waiver or exemption described in para- ties and may include governmental ac- graph (d) of this section or because the tion such as legislation or policy-mak- interest has been divested in accord- ing that is narrowly focused on the in- ance with paragraph (e) of this section, terests of such a discrete and identifi- an employee shall disqualify himself able class of persons. The term par- from participating in a particular mat- WReier-Aviles on DSKGBLS3C1PROD with CFR ticular matter, however, does not ex- ter in which, to his knowledge, he or a tend to the consideration or adoption person whose interests are imputed to of broad policy options that are di- him has a financial interest, if the par- rected to the interests of a large and ticular matter will have a direct and 586 VerDate Mar<15>2010 12:53 Feb 14, 2011 Jkt 223010 PO 00000 Frm 00598 Fmt 8010 Sfmt 8010 Y:\SGML\223010.XXX 223010 Office of Government Ethics § 2635.402 predictable effect on that interest. Dis- in a particular matter where the other- qualification is accomplished by not wise disqualifying financial interest is participating in the particular matter. the subject of a regulatory exemption (1) Notification. An employee who be- or individual waiver described in this comes aware of the need to disqualify paragraph, or results from certain In- himself from participation in a par- dian birthrights as described in 18 ticular matter to which he has been as- U.S.C. 208(b)(4). signed should notify the person respon- (1) Regulatory exemptions. Under 18 sible for his assignment. An employee U.S.C. 208(b)(2), regulatory exemptions who is responsible for his own assign- of general applicability have been ment should take whatever steps are issued by the Office of Government necessary to ensure that he does not Ethics, based on its determination that participate in the matter from which particular interests are too remote or he is disqualified. Appropriate oral or too inconsequential to affect the integ- written notification of the employee’s rity of the services of employees to disqualification may be made to co- whom those exemptions apply. See the workers by the employee or a super- regulations in subpart B of part 2640 of visor to ensure that the employee is this chapter, which supersede any pre- not involved in a matter from which he existing agency regulatory exemptions. is disqualified. (2) Individual waivers. An individual (2) Documentation. An employee need waiver enabling the employee to par- not file a written disqualification ticipate in one or more particular mat- statement unless he is required by part ters may be issued under 18 U.S.C. 2634 of this chapter to file written evi- 208(b)(1) if, in advance of the employ- dence of compliance with an ethics ee’s participation: agreement with the Office of Govern- (i) The employee: ment Ethics or is asked by an agency (A) Advises the Government official ethics official or the person responsible responsible for the employee’s appoint- for his assignment to file a written dis- ment (or other Government official to qualification statement. However, an whom authority to issue such a waiver employee may elect to create a record for the employee has been delegated) of his actions by providing written no- about the nature and circumstances of tice to a supervisor or other appro- the particular matter or matters; and priate official. (B) Makes full disclosure to such offi- Example 1: An Assistant Secretary of the cial of the nature and extent of the dis- Department of the Interior owns rec- qualifying financial interest; and reational property that borders on land (ii) Such official determines, in writ- which is being considered for annexation to a ing, that the employee’s financial in- national park. Annexation would directly terest in the particular matter or mat- and predictably increase the value of her va- cation property and, thus, she is disqualified ters is not so substantial as to be from participating in any way in the Depart- deemed likely to affect the integrity of ment’s deliberations or decisions regarding the services which the Government the annexation. Because she is responsible may expect from such employee. See for determining which matters she will work also subpart C of part 2640 of this chap- on, she may accomplish her disqualification ter, for additional guidance. merely by ensuring that she does not partici- (3) Federal advisory committee member pate in the matter. Because of the level of waivers. An individual waiver may be her position, however, the Assistant Sec- retary might be wise to establish a record issued under 18 U.S.C. 208(b)(3) to a spe- that she has acted properly by providing a cial Government employee serving on, written disqualification statement to an offi- or under consideration for appointment cial superior and by providing written notifi- to, an advisory committee within the cation of the disqualification to subordinates meaning of the Federal Advisory Com- to ensure that they do not raise or discuss mittee Act if the Government official with her any issues related to the annex- responsible for the employee’s appoint- ation. ment (or other Government official to WReier-Aviles on DSKGBLS3C1PROD with CFR (d) Waiver of or exemptions from dis- whom authority to issue such a waiver qualification. An employee who would for the employee has been delegated): otherwise be disqualified by 18 U.S.C. (i) Reviews the financial disclosure 208(a) may be permitted to participate report filed by the special Government 587 VerDate Mar<15>2010 12:53 Feb 14, 2011 Jkt 223010 PO 00000 Frm 00599 Fmt 8010 Sfmt 8010 Y:\SGML\223010.XXX 223010 § 2635.403 5 CFR Ch. XVI (1–1–11 Edition) employee pursuant to the Ethics in assigned to a particular matter from Government Act of 1978; and which he is disqualified, the employee (ii) Certifies in writing that the need should advise his supervisor or other for the individual’s services outweighs person responsible for his assignments the potential for a conflict of interest of that potential so that conflicting as- created by the otherwise disqualifying signments can be avoided, consistent financial interest. See also subpart C of with the agency’s needs. part 2640 of this chapter, for additional guidance. [57 FR 35042, Aug. 7, 1992, as amended at 62 FR 48747, Sept. 17, 1997] (4) Consultation and notification re- garding waivers. When practicable, an § 2635.403 Prohibited financial inter- official is required to consult formally ests. or informally with the Office of Gov- ernment Ethics prior to granting a An employee shall not acquire or waiver referred to in paragraph (d)(2) hold any financial interest that he is or (3) of this section. A copy of each prohibited from acquiring or holding such waiver is to be forwarded to the by statute, by agency regulation issued Director of the Office of Government in accordance with paragraph (a) of Ethics. this section or by reason of an agency (e) Divestiture of a disqualifying finan- determination of substantial conflict cial interest. Upon sale or other divesti- under paragraph (b) of this section. ture of the asset or other interest that NOTE: There is no statute of Government- causes his disqualification from par- wide applicability prohibiting employees ticipation in a particular matter, 18 from holding or acquiring any financial in- U.S.C. 208(a) and paragraph (c) of this terest. Statutory restrictions, if any, are section will no longer prohibit the em- contained in agency statutes which, in some ployee’s participation in the matter. cases, may be implemented by agency regu- (1) Voluntary divestiture. An employee lations issued independent of this part. who would otherwise be disqualified (a) Agency regulation prohibiting cer- from participation in a particular mat- tain financial interests. An agency may, ter may voluntarily sell or otherwise by supplemental agency regulation divest himself of the interest that issued after February 3, 1993, prohibit causes the disqualification. or restrict the acquisition or holding of (2) Directed divestiture. An employee may be required to sell or otherwise di- a financial interest or a class of finan- vest himself of the disqualifying finan- cial interests by agency employees, or cial interest if his continued holding of any category of agency employees, and that interest is prohibited by statute the spouses and minor children of those or by agency supplemental regulation employees, based on the agency’s de- issued in accordance with § 2635.403(a), termination that the acquisition or or if the agency determines in accord- holding of such financial interests ance with § 2635.403(b) that a substan- would cause a reasonable person to tial conflict exists between the finan- question the impartiality and objec- cial interest and the employee’s duties tivity with which agency programs are or accomplishment of the agency’s administered. Where the agency re- mission. stricts or prohibits the holding of cer- (3) Eligibility for special tax treatment. tain financial interests by its employ- An employee who is directed to divest ees’ spouses or minor children, any an interest may be eligible to defer the such prohibition or restriction shall be tax consequences of divestiture under based on a determination that there is subpart J of part 2634 of this chapter. a direct and appropriate nexus between An employee who divests before obtain- the prohibition or restriction as ap- ing a certificate of divestiture will not plied to spouses and minor children and be eligible for this special tax treat- the efficiency of the service. ment. (b) Agency determination of substantial WReier-Aviles on DSKGBLS3C1PROD with CFR (f) Official duties that give rise to po- conflict. An agency may prohibit or re- tential conflicts. Where an employee’s strict an individual employee from ac- official duties create a substantial quiring or holding a financial interest likelihood that the employee may be or a class of financial interests based 588 VerDate Mar<15>2010 12:53 Feb 14, 2011 Jkt 223010 PO 00000 Frm 00600 Fmt 8010 Sfmt 8010 Y:\SGML\223010.XXX 223010
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