9590 Federal Register / Vol. 61, No. 48 / Monday, March 11, 1996 / Rules and Regulations
7 CFR Part 70
Food grades and standards, Food
labeling, Poultry and poultry products,
Rabbits and rabbit products, Reporting
and recordkeeping requirements.
7 CFR Part 160
Administrative practice and
procedure, Advertising, Forests and
forest products, Labeling, Packaging and
containers, Reporting and recordkeeping
requirements.
Dated: February 29, 1996.
David N. Lewis,
Acting Administrator.
[FR Doc. 96–5716 Filed 3–8–96; 8:45 am]
BILLING CODE 3410–02–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 366
RIN 3064–AB39
Contractor Conflicts of Interest
AGENCY: Federal Deposit Insurance
Corporation.
ACTION: Interim final rule.
SUMMARY: The Board of Directors of the
Federal Deposit Insurance Corporation
(FDIC or Corporation), with the
concurrence of the Office of
Government Ethics (OGE), is adopting
an interim final rule implementing
certain provisions of section 19 of the
Resolution Trust Corporation
Completion Act (the Completion Act)
and soliciting comments. Section 19 of
the Completion Act amended section 12
of the Federal Deposit Insurance Act
(FDI Act) and requires the Board of
Directors to prescribe regulations to
ensure that contractors meet minimum
standards of competence, experience,
integrity and fitness, and requires that
these regulations establish prohibitions
on the Corporation’s ability to contract
with or have certain entities provide
services to the FDIC. Section 19 of the
Completion Act also requires that the
Board of Directors prescribe regulations
governing conflicts of interest, ethical
responsibilities, and the use of
confidential information for those
independent contractors who are not
deemed under the FDI Act, as amended,
to be employees of the Corporation for
purposes of Title 18 of the United States
Code. Pursuant to the authority granted
to it under the Completion Act, the
Board of Directors is making the
regulations required under section 19 of
the Completion Act applicable to any
FDIC contracts for services and has
combined the required regulations in
the interim final rule.
The Board determined that combining
the prescribed regulations into one rule
would provide the most consistent
treatment of contractors and reduce
confusion in the application of the
regulations.
DATES: Effective date. April 10, 1996.
Comment period date. Comments
must be received on or before May 10,
1996.
ADDRESSES: Send comments to Jerry L.
Langley, Executive Secretary, FDIC, 550
17th Street, NW, Washington, DC 20429.
Comments may be hand-delivered to
room 400, 1776 F Street, NW,
Washington, DC 20429 on business days
between 8:30 a.m. and 5:00 p.m. [FAX
number: (202) 898–3604; Internet:
comments@FDIC.gov]. Comments will
be available for inspection and
photocopying at the FDIC’s Reading
Room, room 7118, 550 17th Street, NW,
Washington, DC 20429, between 9:00
a.m. and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT:
James T. Lantelme, Assistant General
Counsel, Regional Affairs Section, Legal
Division, (202) 736–0120; or Richard M.
Handy, Ethics Program Manager, Office
of the Executive Secretary, (202) 898–
7271, both at the FDIC.
SUPPLEMENTARY INFORMATION:
I. Background
On June 24, 1994, the Corporation
published for comment a proposed rule
applicable to independent contractors
designed to establish standards
governing conflicts of interest, ethical
responsibilities, and the use of
confidential information and procedures
for ensuring that independent
contractors meet minimum standards of
competence, experience, integrity, and
fitness (59 FR 32661–32668). The
proposed rule was published in
response to the requirements of Section
19(a) of the Resolution Trust
Corporation Completion Act, codified at
12 U.S.C. 1822(f), which requires that
the Board of Directors prescribe
regulations establishing procedures for
ensuring that any individual who is
performing any function or service on
behalf of the Corporation meets
minimum standards of competence,
experience, integrity, and fitness and
prohibiting any person who does not
meet such standards from entering into
contracts for services with or performing
services on behalf of the Corporation.
The Completion Act also requires the
Board of Directors, with the concurrence
of OGE, to prescribe regulations
governing conflicts of interest, ethical
responsibilities, and the use of
confidential information. The proposed
rule prescribed a 60-day comment
period and invited comments from all
interested parties. The Corporation
received six comment letters and, after
careful consideration of each comment,
has made appropriate modifications to
the rule. In addition, OGE requested
numerous changes which resulted in the
reorganization and modification of some
provisions. The Board determined that
an interim final rule would be
appropriate in order to allow interested
parties to comment on the revised rule
while providing for the prompt
implementation of the rule to satisfy
concerns relating to the merger of the
RTC into the FDIC. The Corporation,
with the concurrence of OGE, is now
publishing, as an interim final rule, the
Contractor Conflicts of Interest rule, to
be codified in new part 366 of 12 CFR
chapter III.
Pursuant to the Completion Act, OGE
is providing its concurrence to those
provisions of the interim final rule
which govern conflicts of interest,
ethical responsibilities, and the use of
confidential information as applicable
to independent contractors which are
not deemed under 12 U.S.C.
1822(f)(1)(B) to be employees of the
Corporation for purposes of Title 18 of
the United States Code. Contractors who
are deemed under 12 U.S.C.
1822(f)(1)(B) to be employees of the
Corporation, are subject, in addition to
the interim final rule, to Title 18 of the
United States Code; the Standards of
Ethical Conduct for Employees of the
Executive Branch (5 CFR part 2635); the
Supplemental Standards of Ethical
Conduct for Employees of the Federal
Deposit Insurance Corporation (5 CFR
part 3201); the Executive Branch
Financial Disclosure, Qualified Trusts,
and Certificates of Divestiture
regulations (5 CFR part 2634); and the
Supplemental Financial Disclosure
Requirements for Employees of the
Federal Deposit Insurance Corporation
(5 CFR part 3202).
II. Summary of the Comments
The Corporation received comments
from four law firms and two
corporations. The comments from the
two corporations involved concerns
over the administrative burden that
might be imposed through compliance
with the reporting requirements under
§ 366.6 of the proposed rule. The
comments from the law firms raised a
variety of issues including the potential
effects of state privacy laws, changes in
the treatment of law firms, concerns
over threshold amount in the definition
of default on a material obligation, the
impact of the rule on the use of
7 CFR Part 70
Food grades and standards, Food
labeling, Poultry and poultry products,
Rabbits and rabbit products, Reporting
and recordkeeping requirements.
7 CFR Part 160
Administrative practice and
procedure, Advertising, Forests and
forest products, Labeling, Packaging and
containers, Reporting and recordkeeping
requirements.
Dated: February 29, 1996.
David N. Lewis,
Acting Administrator.
[FR Doc. 96–5716 Filed 3–8–96; 8:45 am]
BILLING CODE 3410–02–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 366
RIN 3064–AB39
Contractor Conflicts of Interest
AGENCY: Federal Deposit Insurance
Corporation.
ACTION: Interim final rule.
SUMMARY: The Board of Directors of the
Federal Deposit Insurance Corporation
(FDIC or Corporation), with the
concurrence of the Office of
Government Ethics (OGE), is adopting
an interim final rule implementing
certain provisions of section 19 of the
Resolution Trust Corporation
Completion Act (the Completion Act)
and soliciting comments. Section 19 of
the Completion Act amended section 12
of the Federal Deposit Insurance Act
(FDI Act) and requires the Board of
Directors to prescribe regulations to
ensure that contractors meet minimum
standards of competence, experience,
integrity and fitness, and requires that
these regulations establish prohibitions
on the Corporation’s ability to contract
with or have certain entities provide
services to the FDIC. Section 19 of the
Completion Act also requires that the
Board of Directors prescribe regulations
governing conflicts of interest, ethical
responsibilities, and the use of
confidential information for those
independent contractors who are not
deemed under the FDI Act, as amended,
to be employees of the Corporation for
purposes of Title 18 of the United States
Code. Pursuant to the authority granted
to it under the Completion Act, the
Board of Directors is making the
regulations required under section 19 of
the Completion Act applicable to any
FDIC contracts for services and has
combined the required regulations in
the interim final rule.
The Board determined that combining
the prescribed regulations into one rule
would provide the most consistent
treatment of contractors and reduce
confusion in the application of the
regulations.
DATES: Effective date. April 10, 1996.
Comment period date. Comments
must be received on or before May 10,
1996.
ADDRESSES: Send comments to Jerry L.
Langley, Executive Secretary, FDIC, 550
17th Street, NW, Washington, DC 20429.
Comments may be hand-delivered to
room 400, 1776 F Street, NW,
Washington, DC 20429 on business days
between 8:30 a.m. and 5:00 p.m. [FAX
number: (202) 898–3604; Internet:
comments@FDIC.gov]. Comments will
be available for inspection and
photocopying at the FDIC’s Reading
Room, room 7118, 550 17th Street, NW,
Washington, DC 20429, between 9:00
a.m. and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT:
James T. Lantelme, Assistant General
Counsel, Regional Affairs Section, Legal
Division, (202) 736–0120; or Richard M.
Handy, Ethics Program Manager, Office
of the Executive Secretary, (202) 898–
7271, both at the FDIC.
SUPPLEMENTARY INFORMATION:
I. Background
On June 24, 1994, the Corporation
published for comment a proposed rule
applicable to independent contractors
designed to establish standards
governing conflicts of interest, ethical
responsibilities, and the use of
confidential information and procedures
for ensuring that independent
contractors meet minimum standards of
competence, experience, integrity, and
fitness (59 FR 32661–32668). The
proposed rule was published in
response to the requirements of Section
19(a) of the Resolution Trust
Corporation Completion Act, codified at
12 U.S.C. 1822(f), which requires that
the Board of Directors prescribe
regulations establishing procedures for
ensuring that any individual who is
performing any function or service on
behalf of the Corporation meets
minimum standards of competence,
experience, integrity, and fitness and
prohibiting any person who does not
meet such standards from entering into
contracts for services with or performing
services on behalf of the Corporation.
The Completion Act also requires the
Board of Directors, with the concurrence
of OGE, to prescribe regulations
governing conflicts of interest, ethical
responsibilities, and the use of
confidential information. The proposed
rule prescribed a 60-day comment
period and invited comments from all
interested parties. The Corporation
received six comment letters and, after
careful consideration of each comment,
has made appropriate modifications to
the rule. In addition, OGE requested
numerous changes which resulted in the
reorganization and modification of some
provisions. The Board determined that
an interim final rule would be
appropriate in order to allow interested
parties to comment on the revised rule
while providing for the prompt
implementation of the rule to satisfy
concerns relating to the merger of the
RTC into the FDIC. The Corporation,
with the concurrence of OGE, is now
publishing, as an interim final rule, the
Contractor Conflicts of Interest rule, to
be codified in new part 366 of 12 CFR
chapter III.
Pursuant to the Completion Act, OGE
is providing its concurrence to those
provisions of the interim final rule
which govern conflicts of interest,
ethical responsibilities, and the use of
confidential information as applicable
to independent contractors which are
not deemed under 12 U.S.C.
1822(f)(1)(B) to be employees of the
Corporation for purposes of Title 18 of
the United States Code. Contractors who
are deemed under 12 U.S.C.
1822(f)(1)(B) to be employees of the
Corporation, are subject, in addition to
the interim final rule, to Title 18 of the
United States Code; the Standards of
Ethical Conduct for Employees of the
Executive Branch (5 CFR part 2635); the
Supplemental Standards of Ethical
Conduct for Employees of the Federal
Deposit Insurance Corporation (5 CFR
part 3201); the Executive Branch
Financial Disclosure, Qualified Trusts,
and Certificates of Divestiture
regulations (5 CFR part 2634); and the
Supplemental Financial Disclosure
Requirements for Employees of the
Federal Deposit Insurance Corporation
(5 CFR part 3202).
II. Summary of the Comments
The Corporation received comments
from four law firms and two
corporations. The comments from the
two corporations involved concerns
over the administrative burden that
might be imposed through compliance
with the reporting requirements under
§ 366.6 of the proposed rule. The
comments from the law firms raised a
variety of issues including the potential
effects of state privacy laws, changes in
the treatment of law firms, concerns
over threshold amount in the definition
of default on a material obligation, the
impact of the rule on the use of
9591Federal Register / Vol. 61, No. 48 / Monday, March 11, 1996 / Rules and Regulations
subsidiaries, and the potential for
former insiders of failed institutions to
be involved in the liquidation of other
failed institutions.
III. Analysis of the Comments and
Changes to the Rule
Section 366.1 Authority, Purpose and
Scope
Authority. Section 366.1(a) of the
proposed rule was modified by adding
section 12(f)(4) of the Federal Deposit
Insurance Act to the list of authorities.
Purpose. Section 366.1(b) of the
proposed rule was simplified by
dividing the provision into its
component parts and changing its
language to be consistent with language
used elsewhere in the rule.
Scope. One of the law firm
commenters suggested that the scope of
the rule be limited by adding a
provision which would provide that the
existing policies concerning outside
counsel conflicts of interest remain
unchanged after adoption of the rule.
The Board declined to modify the scope
of the rule with regard to law firms.
Section 19(a) of the Completion Act,
codified at 12 U.S.C. 1822(f), does not
provide an exception to its application
for legal services contracts. To date, the
FDIC’s Legal Division has applied the
Resolution Trust Corporation’s (RTC)
rule, 12 CFR part 1606, entitled
Qualification of, Ethical Standards for,
and Restrictions on the Use of
Confidential Information by
Independent Contractors (part 1606), in
its contract relationships with law firms.
Part 1606 was promulgated by the RTC
in response to requirements imposed
upon it by the Financial Institutions
Reform, Recovery, and Enforcement Act
of 1989 (FIRREA). The FDIC has
substantially identical restrictions on
the use of contractors imposed by the
Completion Act. Thus, it is not expected
that the FDIC’s relationships with the
law firms with which it contracts will
substantially change after the
promulgation of the interim final rule.
However, in order to better clarify the
scope of the rule, § 366.1(c)(1) of the
proposed rule was reorganized and
revised in order to (1) eliminate
unnecessary language and simplify the
provision, (2) clearly set forth that the
rule is applicable to law firms, (3)
clarify the application of the rule to
subcontractors of FDIC contractors, and
(4) at the request of the Board, remove
Corporate leases of real property from
coverage under the rule.
Section 366.1(c)(2) was not changed.
Resolution Trust Corporation. Section
366.1(d) was simplified by eliminating
unnecessary language.
Previous policies. Section 366.1(e)
was eliminated as being unnecessary.
Effective on April 10, 1996, this part
supersedes and replaces the FDIC’s
‘‘Statement of Policy on Contracting
with Outside Firms’’, which was
published in the Federal Register on
May 17, 1993, at 58 FR 28866.
Section 366.2 Definitions
Affiliated business entity. Section
366.2(a), the definition of affiliated
business entity, was modified at the
request of OGE. The Office of
Government Ethics believed that the
discretionary aspect of the definition set
forth in the proposed rule was too
subjective and that FDIC concerns as to
whether various types of relationships
constitute affiliations are adequately
addressed through the use of the
defined term control in the affiliated
business entity definition. Under the
definition of control, the FDIC is able to
determine that an entity is an affiliated
business entity when such entity has the
ability to exercise a controlling
influence over a company’s
management and policies. Additionally,
OGE suggested the deletion of the
statement concerning when a
subfranchiser would not be considered
to be an affiliated business entity of its
master franchiser on the basis that the
remaining definition adequately
addresses that issue.
Company. The definition of company,
as set forth in § 366.2(b) of the proposed
rule, was modified through the
elimination of the term individual from
such definition. The Office of
Government Ethics disagreed with the
proposed inclusion of the term
individual since such term was not
consistent with the remaining business
enterprises listed under the definition
and was contrary to the common
meaning of such term. In making such
change, it was determined to be
unnecessary to separately define the
term individual since its meaning is
commonly understood. Revision of the
definition of company also necessitated
revision of the definitions of contractor,
management official, and person.
Contractor. The definition of
contractor was changed due to the
impact of changes to other definitions.
In § 366.2(e) of the proposed rule, a two-
part definition was provided. Section
366.2(e)(1) provided that a contractor
was a company which had submitted an
offer to, or had a contractual
arrangement with, the FDIC to perform
services. Since the definition of
company has been modified to exclude
the term individual, the proposed rule
was further modified by replacing the
term company with person at § 366.2(d)
of the interim final rule in order to
include individuals in the coverage of
the definition of contractor. The second
part of the definition of contractor,
found at § 366.2(e)(2) of the proposed
rule, involved subcontracting
relationships. Section 366.2(o) of the
interim final rule provides a separate
definition of the term subcontractor.
Management official. The definition
of the term management official, as set
forth in § 366.2(m) of the proposed rule,
was modified at OGE’s request to
provide greater guidance in the use of
such term. In the proposed rule,
management official was defined to
mean an individual who controls a
company. In § 366.2(i) of the interim
final rule, management official is more
specifically defined as a shareholder,
employee, or partner who controls a
company and any individual who
directs the day-to-day operations of a
company. For partnerships, all general
partners are considered management
officials, except when a partnership has
a management or executive committee,
in which case the members of such
committees are considered management
officials.
Person. The definition of person,
found at § 366.2(q) of the proposed rule,
was changed to be more compatible
with its common meaning. One of the
law firm commenters objected to the
scope of the information that was
required to be submitted by law firm
employees under § 366.6(a) of the
proposed rule due to the mistaken belief
that a more common definition of the
word person was applicable. Since the
definition set forth in the proposed rule
is inconsistent with the common
meaning of person and would likely
cause confusion among contractors and
those FDIC employees charged with
enforcement of the rule, its definition
was changed in the interim final rule to
include an individual or company. Such
change satisfied similar concerns which
had been raised by OGE.
Confidential information. The
definition of confidential information,
found at § 366.2(c) of the proposed rule,
was moved to § 366.8(c) in the interim
final rule and simplified by eliminating
unnecessary language.
Conflict of interest. The definition of
conflict of interest, found at § 366.2(d) of
the proposed rule, was changed at the
request of OGE and one of the corporate
commenters in order to provide a more
narrow definition and eliminate
redundant language.
Section 366.2(d)(1) of the proposed
rule had two subparts. The first subpart,
concerning actual adverse impact on a
contractor’s ability to impartially
provide services, was determined to be
subsidiaries, and the potential for
former insiders of failed institutions to
be involved in the liquidation of other
failed institutions.
III. Analysis of the Comments and
Changes to the Rule
Section 366.1 Authority, Purpose and
Scope
Authority. Section 366.1(a) of the
proposed rule was modified by adding
section 12(f)(4) of the Federal Deposit
Insurance Act to the list of authorities.
Purpose. Section 366.1(b) of the
proposed rule was simplified by
dividing the provision into its
component parts and changing its
language to be consistent with language
used elsewhere in the rule.
Scope. One of the law firm
commenters suggested that the scope of
the rule be limited by adding a
provision which would provide that the
existing policies concerning outside
counsel conflicts of interest remain
unchanged after adoption of the rule.
The Board declined to modify the scope
of the rule with regard to law firms.
Section 19(a) of the Completion Act,
codified at 12 U.S.C. 1822(f), does not
provide an exception to its application
for legal services contracts. To date, the
FDIC’s Legal Division has applied the
Resolution Trust Corporation’s (RTC)
rule, 12 CFR part 1606, entitled
Qualification of, Ethical Standards for,
and Restrictions on the Use of
Confidential Information by
Independent Contractors (part 1606), in
its contract relationships with law firms.
Part 1606 was promulgated by the RTC
in response to requirements imposed
upon it by the Financial Institutions
Reform, Recovery, and Enforcement Act
of 1989 (FIRREA). The FDIC has
substantially identical restrictions on
the use of contractors imposed by the
Completion Act. Thus, it is not expected
that the FDIC’s relationships with the
law firms with which it contracts will
substantially change after the
promulgation of the interim final rule.
However, in order to better clarify the
scope of the rule, § 366.1(c)(1) of the
proposed rule was reorganized and
revised in order to (1) eliminate
unnecessary language and simplify the
provision, (2) clearly set forth that the
rule is applicable to law firms, (3)
clarify the application of the rule to
subcontractors of FDIC contractors, and
(4) at the request of the Board, remove
Corporate leases of real property from
coverage under the rule.
Section 366.1(c)(2) was not changed.
Resolution Trust Corporation. Section
366.1(d) was simplified by eliminating
unnecessary language.
Previous policies. Section 366.1(e)
was eliminated as being unnecessary.
Effective on April 10, 1996, this part
supersedes and replaces the FDIC’s
‘‘Statement of Policy on Contracting
with Outside Firms’’, which was
published in the Federal Register on
May 17, 1993, at 58 FR 28866.
Section 366.2 Definitions
Affiliated business entity. Section
366.2(a), the definition of affiliated
business entity, was modified at the
request of OGE. The Office of
Government Ethics believed that the
discretionary aspect of the definition set
forth in the proposed rule was too
subjective and that FDIC concerns as to
whether various types of relationships
constitute affiliations are adequately
addressed through the use of the
defined term control in the affiliated
business entity definition. Under the
definition of control, the FDIC is able to
determine that an entity is an affiliated
business entity when such entity has the
ability to exercise a controlling
influence over a company’s
management and policies. Additionally,
OGE suggested the deletion of the
statement concerning when a
subfranchiser would not be considered
to be an affiliated business entity of its
master franchiser on the basis that the
remaining definition adequately
addresses that issue.
Company. The definition of company,
as set forth in § 366.2(b) of the proposed
rule, was modified through the
elimination of the term individual from
such definition. The Office of
Government Ethics disagreed with the
proposed inclusion of the term
individual since such term was not
consistent with the remaining business
enterprises listed under the definition
and was contrary to the common
meaning of such term. In making such
change, it was determined to be
unnecessary to separately define the
term individual since its meaning is
commonly understood. Revision of the
definition of company also necessitated
revision of the definitions of contractor,
management official, and person.
Contractor. The definition of
contractor was changed due to the
impact of changes to other definitions.
In § 366.2(e) of the proposed rule, a two-
part definition was provided. Section
366.2(e)(1) provided that a contractor
was a company which had submitted an
offer to, or had a contractual
arrangement with, the FDIC to perform
services. Since the definition of
company has been modified to exclude
the term individual, the proposed rule
was further modified by replacing the
term company with person at § 366.2(d)
of the interim final rule in order to
include individuals in the coverage of
the definition of contractor. The second
part of the definition of contractor,
found at § 366.2(e)(2) of the proposed
rule, involved subcontracting
relationships. Section 366.2(o) of the
interim final rule provides a separate
definition of the term subcontractor.
Management official. The definition
of the term management official, as set
forth in § 366.2(m) of the proposed rule,
was modified at OGE’s request to
provide greater guidance in the use of
such term. In the proposed rule,
management official was defined to
mean an individual who controls a
company. In § 366.2(i) of the interim
final rule, management official is more
specifically defined as a shareholder,
employee, or partner who controls a
company and any individual who
directs the day-to-day operations of a
company. For partnerships, all general
partners are considered management
officials, except when a partnership has
a management or executive committee,
in which case the members of such
committees are considered management
officials.
Person. The definition of person,
found at § 366.2(q) of the proposed rule,
was changed to be more compatible
with its common meaning. One of the
law firm commenters objected to the
scope of the information that was
required to be submitted by law firm
employees under § 366.6(a) of the
proposed rule due to the mistaken belief
that a more common definition of the
word person was applicable. Since the
definition set forth in the proposed rule
is inconsistent with the common
meaning of person and would likely
cause confusion among contractors and
those FDIC employees charged with
enforcement of the rule, its definition
was changed in the interim final rule to
include an individual or company. Such
change satisfied similar concerns which
had been raised by OGE.
Confidential information. The
definition of confidential information,
found at § 366.2(c) of the proposed rule,
was moved to § 366.8(c) in the interim
final rule and simplified by eliminating
unnecessary language.
Conflict of interest. The definition of
conflict of interest, found at § 366.2(d) of
the proposed rule, was changed at the
request of OGE and one of the corporate
commenters in order to provide a more
narrow definition and eliminate
redundant language.
Section 366.2(d)(1) of the proposed
rule had two subparts. The first subpart,
concerning actual adverse impact on a
contractor’s ability to impartially
provide services, was determined to be