Government Employees Serving in Official Capacity in Nonprofit Organizations; Sector Unit Investment Trusts, 14437-14442 [2013-05243]

Agencies

• Office of Government Ethics

[Federal Register Volume 78, Number 44 (Wednesday, March 6, 2013)]
[Rules and Regulations]
[Pages 14437-14442]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05243]



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Rules and Regulations
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Federal Register / Vol. 78, No. 44 / Wednesday, March 6, 2013 / Rules 
and Regulations

[[Page 14437]]



OFFICE OF GOVERNMENT ETHICS

5 CFR Part 2640

RIN 3209-AA09


Government Employees Serving in Official Capacity in Nonprofit 
Organizations; Sector Unit Investment Trusts

AGENCY: Office of Government Ethics (OGE).

ACTION: Final rule.

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SUMMARY: The Office of Government Ethics is issuing this final rule to 
amend the regulation that describes financial interests that are exempt 
from the prohibition in 18 U.S.C. 208(a). These final rule amendments 
would revise the existing regulatory exemptions by: Creating a new 
exemption that permits Government employees to participate in 
particular matters affecting the financial interests of nonprofit 
organizations in which they serve in an official capacity as officer, 
director or trustee, notwithstanding the employees' imputed financial 
interest under 18 U.S.C. 208(a); and revising the existing exemption 
for interests in the holdings of sector mutual funds to clarify that it 
applies to interests in the holdings of sector unit investment trusts.

DATES: Effective Date: April 5, 2013.

FOR FURTHER INFORMATION CONTACT: Christopher J. Swartz, Assistant 
Counsel, Office of Government Ethics; telephone: 202-482-9300; TTY: 
800-877-8339; FAX: 202-482-9237.

SUPPLEMENTARY INFORMATION:

I. Rulemaking History

    Section 208(a) of title 18 of the United States Code prohibits 
Government employees from participating in an official capacity in 
particular Government matters in which, to their knowledge, they or 
certain other persons specified in the statute have a financial 
interest, if the particular matter would have a direct and predictable 
effect on that interest. Section 208(b)(2) of title 18 permits the 
Office of Government Ethics (OGE) to promulgate regulations describing 
financial interests that are too remote or inconsequential to warrant 
disqualification pursuant to section 208(a). OGE's regulations 
exempting various financial interests are codified at 5 CFR part 2640, 
subpart B.
    On May 3, 2011, OGE published a set of proposed amendments to these 
regulations, proposing to add one new exemption and to revise an 
existing exemption. See 76 FR 24816-24820. Specifically, OGE proposed 
to add a new exemption, 5 CFR 2640.203(m), that would exempt the 
imputed financial interests of nonprofit organizations in which 
employees serve as officers, directors or trustees in their official 
capacity. OGE concluded that such financial interests are too remote or 
inconsequential to affect the integrity of employees' services, as 
explained more fully below. OGE also proposed a revision to the 
existing exemption, at 5 CFR 2640.201(b), that would clarify that the 
exemption for the holdings of a sector mutual fund was intended to 
apply to the holdings of a sector unit investment trust. The proposed 
rule provided a 60-day comment period.
    The Office of Government Ethics received 64 written comments on the 
proposed rule. The majority of comments, 42, were submitted by 
nonprofit associations (including one comment that represented 32 
different organizations and another comment that represented seven 
organizations). OGE also received comments from 16 individuals, 
including current and former Federal employees and other private 
citizens. Three executive agencies submitted comments, as did one 
Federal employees' union. All 64 comments addressed the proposed new 
exemption for official duty participation in nonprofit organizations, 
but only one comment, from an executive agency, addressed the proposed 
amendment pertaining to sector unit investment trusts.

II. Analysis of Rule Amendments, Comments and Revisions

A. Sector Unit Investment Trusts

1. Background
    Among the regulatory exemptions currently found in subpart B of 
part 2640 are several that exempt certain financial interests in mutual 
funds and unit investment trusts. The Office of Government Ethics has 
promulgated exemptions for interests in the holdings of diversified 
mutual funds and diversified unit investment trusts (5 CFR 
2640.201(a)), in the non-sector holdings of sector mutual funds (5 CFR 
2640.201(b)(1)), and in the sector holdings of sector mutual funds when 
the aggregate market value of the employee's interest in the sector 
fund or funds does not exceed $50,000 (5 CFR 2640.201(b)(2)). Most 
recently, the Office of Government Ethics has promulgated one for 
interests in mutual funds and unit investment trusts other than 
interests arising from the holdings of such vehicles (5 CFR 
2640.201(d)). This exemption is limited to particular matters of 
general applicability, as defined in 5 CFR 2640.102(m).
    In promulgating these exemptions, the Office of Government Ethics 
recognized that pooled investment vehicles such as mutual funds and 
unit investment trusts generally pose fewer concerns that the financial 
interests will affect the integrity of the services of Government 
employees. The Office of Government Ethics has noted that usually 
``only a limited portion of the fund's assets [are] placed in the 
securities of any single issuer'' and that ``an employee's interest in 
any one fund is only a small portion of the fund's total assets.'' 60 
FR 47211 (September 11, 1995) (preamble to proposed rule).
    This final rule will amend the language of the exemptions for the 
interests in sector mutual funds to explicitly include the interests of 
sector unit investment trusts. Previously the regulation, 5 CFR 
2640.201(b), did not include the language ``sector unit investment 
trusts.'' At the time that the sector fund exemptions were promulgated, 
the Office of Government Ethics contemplated that the exemptions would 
also extend to those investment vehicles organized as sector unit 
investment trusts. Thus, in practice, the Office of Government Ethics 
has permitted executive branch

[[Page 14438]]

employees to apply the exemptions for interests in sector mutual funds 
to interests in sector unit investment trusts.
    The Office of Government Ethics therefore proposed to specifically 
add a reference to ``sector unit investment trusts'' to 5 CFR 
2640.201(b) in order to clarify that the exemptions for interests in 
the holdings of sector mutual funds also apply to the interests in the 
holdings of sector unit investment trusts. 76 FR 24818-24819. OGE also 
made a conforming amendment to the definition in Sec.  2640.102(q), 
which defines both sector mutual fund and sector unit investment trust.
2. Comments and Revisions
    The Office of Government Ethics received only one comment on the 
proposed revision to 5 CFR 2640.201(b). This comment, from an executive 
agency, simply noted that the proposed revision would be a useful 
update to the exemption. Therefore, for the reasons explained above, 
OGE is adopting as final the language of the proposed revision of Sec.  
2640.201(b) and the conforming revision of Sec.  2640.102(q).

B. Official Participation in Nonprofit Organizations

1. Background
    The new exemption at 5 CFR 2640.203(m) addresses a situation that 
was not generally thought to be covered by 18 U.S.C. 208 until the mid-
1990s. Because it is in the best interests of the Government, a number 
of agencies have had a longstanding practice of assigning employees to 
participate on the boards of directors of certain outside nonprofit 
organizations, when such service is deemed to further the statutory 
mission and/or personnel development interests of the agency. These 
nonprofit organizations included such entities as professional 
associations, scientific societies, and health information promotion 
organizations. Until 1996, neither the agencies involved nor the Office 
of Government Ethics viewed such official participation in nonprofit 
organizations as being prohibited by 18 U.S.C. 208.
    However, in 1996, the Office of Legal Counsel (OLC) at the 
Department of Justice issued an opinion concluding that section 208 
generally prohibits an employee from serving, in an official capacity, 
as an officer, director or trustee of a private nonprofit organization. 
Memorandum of Deputy Assistant Attorney General, OLC, for General 
Counsel, Federal Bureau of Investigation, November 19, 1996, https://www.justice.gov/olc/fbimem.2.htm. This conclusion was premised in large 
part on the fact that officers, directors and trustees of an outside 
organization owe certain fiduciary duties to the organization under 
state law, which may conflict with the primary duty of loyalty that all 
Federal employees owe to the United States. As a consequence of this 
interpretation, employees were no longer permitted to serve in their 
official capacity as officer, director or trustee of an outside 
nonprofit organization, absent an individual waiver under 18 U.S.C. 
208(b) or specific statutory authority permitting such service.\1\
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    \1\ In rare instances, an employee also may be able to serve 
pursuant to a waiver of fiduciary duties by the organization, if 
such a waiver is permitted by state law. See Memorandum of Deputy 
Assistant Attorney General, OLC, to General Counsel, General 
Services Administration, August 7, 1998, https://www.justice.gov/olc/gsa208fn.htm.
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    Following the 1996 OLC opinion, agencies have continued to assign 
employees to serve on such outside boards by granting the employees 
individual waivers under 18 U.S.C. 208(b)(1). Other agencies declined 
to issue individual waivers (or did so rarely), often because of 
discomfort about waiving the application of a criminal statute. OGE 
fielded numerous inquiries and held many meetings with agencies and 
nonprofit organizations, mostly professional and scientific societies, 
concerning the application of section 208 to prevent official 
participation on outside boards. Many of the agencies and nonprofit 
organizations have argued that the application of section 208 created 
unfortunate barriers to professional development and meaningful 
exchange between Federal and non-Federal experts in certain professions 
and areas of expertise. Moreover, some of the organizations pointed out 
that there was a lack of uniformity within the executive branch, owing 
to the willingness of some agencies to grant waivers and the 
unwillingness of other agencies to do so, often with respect to 
participation in the same organization.
    Additionally, the Office of Government Ethics recognized the 
potential for confusion in some instances when employees were permitted 
to serve only in a private, rather than official, capacity. For 
example, when an agency has policy interests that overlap with those of 
the nonprofit organization, it can be very difficult for the employee 
to avoid the mistaken impression that he or she is acting in an 
official capacity when participating in the organization. Further, OGE 
was concerned that employees in some cases were uncertain about the 
extent to which they were permitted to make reference to their official 
position or to use official time or agency resources. See 5 CFR 
2635.702(b); 2635.704; 2635.705. While OGE recognized that such 
confusion no doubt could be reduced by clearer agency instructions 
concerning such matters as excused absence and limited use of agency 
resources in support of outside professional and other organizations, 
the fact remained that sometimes considerable continuity in subject 
matter between an employee's official duties and the employee's 
activities in an outside nonprofit organization remained, and some 
agencies believed it would be clearer to permit the latter to occur 
while the employee was on official duty, without the impediment of 
section 208.\2\
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    \2\ As noted in the preamble to the proposed rule, nothing in 
the exemption limits the ability of an employee to serve as officer, 
director or trustee of a nonprofit organization as a personal 
outside activity, when the agency has not assigned the employee to 
serve in an official capacity. See 76 FR 24817, Note 2. Moreover, 
nothing in the exemption is intended to affect the current ability 
of agencies to assign employees to serve as official liaisons or to 
serve in similar nonfiduciary positions that do not implicate 18 
U.S.C. 208. See OGE Informal Advisory Letter 95 x 8.
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    For all of the above reasons, the Office of Government Ethics in 
2006 recommended to the President and Congress that section 208 be 
amended ``to specify that the financial interests of an organization 
are not imputed to an employee who serves as an officer or director of 
such organization in his or her official capacity.'' OGE, Report to the 
President and to Congressional Committees on the Conflict of Interest 
Laws Relating to Executive Branch Employment 33 (2006) (2006 Report), 
https://www.usoge.gov/ethics_docs/publications/reports_plans.aspx.\3\ 
In the 2006 Report, OGE recognized that it had ``regulatory authority 
to exempt financial interests arising from official service on boards 
of directors,'' but OGE opted at that time to place the issue before 
Congress first. No legislative changes to section 208 were enacted in 
response to the report, however, and OGE continued to receive 
expressions of concern about this matter, both from agencies and from 
nonprofit organizations.
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    \3\ OGE was required to issue this report, in consultation with 
the Department of Justice, by section 8403(d) of the Intelligence 
Reform and Terrorism Prevention Act of 2004, Public Law 108-458 
(December 17, 2004).
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    Then, on March 9, 2009, President Obama issued a Memorandum for the 
Heads of Executive Departments and Agencies on the topic of scientific 
integrity. 74 FR 10671, 3 CFR, 2009 Comp., p. 354. In this memorandum, 
the

[[Page 14439]]

President specifically requested that the Office of Science and 
Technology Policy (OSTP) provide recommendations to address, among 
other things, the retention of staff in scientific and technical 
positions within the executive branch. In response, the Director of 
OSTP issued a memorandum urging all agencies to establish policies that 
promote and facilitate the professional development of Government 
scientists and engineers. John P. Holdren, Director, OSTP, ``Scientific 
Integrity,'' Memorandum for the Heads of Executive Departments and 
Agencies, at 3, December 17, 2010. The OSTP memorandum specifically 
called for policies to ``[a]llow full participation in professional or 
scholarly societies, committees, task forces and other specialized 
bodies of professional societies, including removing barriers for 
serving as officers or on governing boards of such societies.'' Id. at 
4 (emphasis added).
    In response to parallel initiatives, in August of 2010, the 
Director of the Office of Personnel Management (OPM) wrote to OGE to 
express several concerns about the application of section 208 to 
employees serving in their official capacity as officers and directors 
of scientific and professional organizations. Letter of John Berry, 
Director, OPM, to Robert I. Cusick, Director, Office of Government 
Ethics, August 16, 2010 (OPM Letter). Among other things, the Director 
of OPM wrote:

    Policies restricting Federal scientists' and professionals' 
involvement in professional organizations negatively impact the 
agencies employing such individuals. Restrictions act as a barrier 
to employees achieving professional stature in their respective 
fields, which may discourage scientists and professionals from 
considering Federal employment. Restrictions also serve to isolate 
scientists and professionals from the full exchange of knowledge and 
ideas necessary to stay current and participate fully as members of 
the greater scientific community. As a result, Federal scientists 
and professionals are hampered in their ability to provide the best 
possible advice and service to their respective agencies. These 
restrictions are particularly burdensome for the ``research-grade'' 
scientists whose retention and promotion evaluations depend in part 
on the recognition of stature by one's scientific peers. U.S. Office 
of Personnel Management's Research Grade Evaluation Guide, Factor 4; 
Contributions, Impact, and Stature, September, 2006; https://www.opm.gov/Fedclass/gsresch.pdf.

OPM Letter at 2. The Director of OPM asked OGE to consider exercising 
its authority under 18 U.S.C. 208(b)(2) to exempt the financial 
interests of organizations in which employees serve in their official 
capacity, on the ground that such interests are ``too remote and 
inconsequential to warrant disqualification pursuant to section 208.'' 
Id. at 3.
    To address OPM's concerns, as well as the concerns raised by other 
agencies and outside organizations since 1996, and consistent with 
Administration efforts designed to ensure scientific integrity, OGE 
determined that it was appropriate to exercise its authority under 18 
U.S.C. 208(b)(2) to exempt the imputed financial interests of nonprofit 
organizations in which employees serve as officers, directors or 
trustees in their official capacity. Pursuant to the statute, OGE found 
that such financial interests are too remote or inconsequential to 
affect the integrity of employees' services, for several reasons. As 
explained in OGE's 2006 Report, which was issued after consultation 
with the Department of Justice: ``OGE believes that the conflict 
identified by OLC [between the employee's duty of loyalty to the 
Government and the employee's fiduciary duties to the outside 
organization] may be more theoretical than real, particularly because 
employees assigned to serve on outside boards remain subject to 
important Federal controls, such as the authority to review and approve 
(or deny) the official activity in the first place, and the authority 
to order the individual to limit the activity, or even resign the 
position, in the event of a true conflict with Federal interests. In 
addition, an agency generally approves such activities only where the 
organization's interests are in consonance with the agency's own 
interests. In an era when `public/private partnerships' are promoted as 
a positive way for Government to achieve its objectives more 
efficiently, ethics officials find it difficult to explain and justify 
to agency employees why a waiver is required for official board 
services that have been determined by the agency to be proper.'' 2006 
Report at 33. In short, the potential for a real conflict of interest 
is too remote or inconsequential to affect the integrity of an 
employee's services under these circumstances. For the above noted 
reasons, OGE published a proposed rule on May 3, 2011, creating an 
exemption for the imputed financial interests of nonprofit 
organizations in which employees serve as officers, directors or 
trustees in their official capacity from the prohibition of 18 U.S.C. 
208(a).
    As we noted in the preamble to the proposed rule, agencies will 
continue to retain discretion to impose meaningful controls and limits 
on employees serving in nonprofit organizations. 76 FR 24818. The Note 
following section 2640.203(m) clarifies that agencies must satisfy 
themselves that they have authority to assign employees to serve in 
such organizations in the first place; the exemption does not itself 
constitute such authority, but simply removes the bar of the conflict 
of interest law. Moreover, agency decisions to permit (or not permit) 
official participation in any particular outside organization will be 
informed by numerous legal, policy, and managerial considerations, such 
as: The degree to which the activity will further the agency's 
statutory mission; the availability of agency funds and other resources 
to support such activities; the degree to which the agency is able and 
willing to assign employees to serve in other, similar organizations 
without appearing to single out one organization unreasonably; and the 
demands of the agency's workload and the particular employee's other 
assignments.\4\ Even when an agency does permit an employee to serve as 
officer, director or trustee of a nonprofit organization, the agency 
has discretion to limit or condition the official duty activity in a 
manner consistent with the needs and interests of the agency. This may 
include limits on participation in lobbying, fundraising, regulatory, 
investigational, or representational activities, as determined by the 
agency. For example, where agencies have granted individual waivers in 
the past, under section 208(b)(1), some agencies have required 
employees to refrain from participating in the fundraising activities 
of the outside organization or from participating in agency decisions 
to award grants or contracts to the organization; agencies will remain 
free to impose similar limits as they deem appropriate in the 
future.\5\ See OGE Memorandum DO-07-006, https://www.usoge.gov/ethics_guidance/daeograms/dgr_files/2007/do07006.html. In other words, 
nothing in the regulatory exemption is intended to interfere with the 
discretion of agencies to assign duties and describe the limits of 
official assignments, including assignments that involve outside 
nonprofit organizations.
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    \4\ Even prior to the 1996 OLC opinion, some agencies rarely if 
ever permitted employees to serve as officers, directors or trustees 
of outside organizations in an official capacity, because of fiscal, 
policy or managerial concerns. Notwithstanding the regulatory 
exemption, agencies may continue to decline to assign employees to 
serve in an official capacity for similar reasons.
    \5\ In any event, agency decisions to permit an employee to 
engage in official fundraising for a nonprofit organization must 
take into account the requirements of 5 CFR 2635.808(b) and 5 CFR 
part 950.

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[[Page 14440]]

2. Comments and Revisions
    The overwhelming majority of comments were strongly supportive of 
the proposed new exemption, 5 CFR 2640.203(m), which would exempt the 
imputed financial interests of nonprofit organizations in which an 
employee serves, solely in an official Government capacity, as officer, 
director or trustee. Most of these comments agreed with OGE's 
conclusion that the exemption would remove an unnecessary barrier to 
professional development for Government employees and the achievement 
of other agency missions and goals. Several of the comments recited 
instances in which the current application of 18 U.S.C. 208 had led 
employees to resign from positions or decline service, as well as 
instances in which there was confusion among agency employees and 
officials of nonprofit organizations about what activities were 
permitted by different agencies, which had differing policies and 
practices with regard to the issuance of individual waivers under 18 
U.S.C. 208(b)(1). Some commenters also expressed the view that 
increased participation in scientific and professional organizations 
would enhance the quality and integrity of government policymaking: As 
one environmental advocacy organization put it, such participation 
``will, in our view, actually further the quality of information used 
in official decision-making and enhance the transparency of that 
decision-making'' while also tending to deter ``political 
manipulation'' of scientific policies.
    A small number of comments did raise certain concerns about the 
proposed exemption. One individual stated flatly that ``no Federal 
employee should serve on any non-profit board,'' because, among other 
things, she believed that nonprofit organizations are not accountable 
to the public, their operations are not transparent, and they benefit 
from unwarranted advantages under the tax laws. This view, however, 
contradicts decades of executive branch policy and is inconsistent with 
the spirit of the President's 2009 memorandum and with Director Barry's 
policy objectives as stated in his letter of August 16, 2012. Further, 
the Office of Government Ethics notes that the criminal conflict of 
interest law and the regulations promulgated thereunder provide an 
appropriate mechanism for addressing general concerns about the role of 
executive branch personnel serving at nonprofit organizations in the 
United States.
    Another individual similarly expressed ``grave misgivings'' about 
the involvement of Federal employees in nonprofit organizations, in 
part because some nonprofit organizations provide products and 
services, and the participation of Federal employees may be taken as an 
endorsement that creates an unfair competitive advantage over for-
profit businesses that offer the same products and services. This 
commenter recommended that any exemption should be conditioned on the 
Government publishing a list of approved nonprofit professional 
organizations, which would constitute the only permissible 
opportunities for official service. OGE does not agree that the mere 
participation of a Federal employee on the board of a nonprofit 
organization necessarily constitutes a general endorsement of that 
organization's products and services, but in any event, as noted above, 
OGE believes that the proposed regulatory exemption appropriately 
recognizes the discretion of agencies to use their sound judgment to 
determine which nonprofit organizations provide acceptable 
opportunities for professional development and the achievement of other 
agency objectives. Moreover, given the large number and wide range of 
nonprofit organizations, as well as the significant variations among 
agency missions, OGE does not believe it is either feasible or 
desirable to prescribe a single list of approved organizations for the 
entire Government.
    One of these individuals, as well as another individual commenter, 
raised concerns about the possibility that Federal employees serving in 
nonprofit organizations could become involved in inappropriate 
fundraising activities. As noted above, however, any fundraising by 
agency employees in their official capacity is already subject to 
important limits. Furthermore, the textual Note following Sec.  
2640.203(m) makes clear that agencies retain the discretion to limit 
assignments involving nonprofit organizations, and the preamble to the 
proposed rule explains that such limits may include instructions not to 
engage in fundraising activities. Such limitations on fundraising are 
already common in individual waivers that agencies have issued under 18 
U.S.C. 208(b)(1), and OGE anticipates that many agencies will continue 
to apply similar limits when assigning employees to participate in 
nonprofit organizations in the future.
    One organization generally supported the proposed exemption, but 
recommended that the rule be revised to require that agencies post 
information on their Web sites concerning each employee serving in an 
official capacity on the board of a nonprofit organization, including 
the employee's role on the board, the term of service and a description 
of the nonprofit organization. The commenter believed that such 
transparency was necessary because some nonprofit organizations may be 
``dominated by corporate members'' or may receive ``donations by 
special interests with specific policy goals,'' and the participation 
of Federal employees in those organizations might lead to those 
employees being inappropriately influenced with respect to agency 
policies. In OGE's view, even though an agency may choose to post 
information about official participation as a good practice, this would 
not be an appropriate condition for a regulatory exemption issued under 
18 U.S.C. 208(b)(2). Regulatory exemptions are intended to be self-
executing, and employees should be able to rely on the exemptions 
without individual agency action as a condition, including disclosure 
of information; indeed, this is one of the key distinctions between an 
individual waiver under 18 U.S.C. 208(b)(1) and a regulatory exemption 
under section 208(b)(2). Compare 18 U.S.C. 208(b)(1) (employee must 
disclose financial interest and receive individual determination), with 
18 U.S.C. 208(b)(2) (regulation applies to all employees or entire 
class of employees).
    A Federal employee labor union commented that it ``strongly 
supports the adoption'' of the proposed recommendation, but expressed 
``some concern with the degree of discretion left to agencies to decide 
whether to permit employee participation in their official capacity.'' 
In particular, the union stated that employees have ``a First Amendment 
right to speak on matters of public concern and the government's 
interest in censoring the content of that speech, by declining to 
permit employee participation, would have to outweigh employees' strong 
interest in speech on such matters to the nonprofit professional 
associations.'' The union therefore suggested that OGE revise the 
proposed rule to specify that ``permission to participate is not to be 
denied for improper reasons.'' OGE has not adopted this suggested 
revision. OGE's role is not to determine agency management practices 
concerning the assignment of work, beyond the determination of whether 
an assignment is consistent with the conflict of interest laws and 
regulations. Moreover, as stated above, nothing in the rule limits the 
ability of an employee to serve as an officer, director or trustee of a 
nonprofit organization as a personal outside activity, when the agency 
has not

[[Page 14441]]

assigned the employee to serve in an official capacity.
    One agency recommended that OGE add the parenthetical phrase ``(or 
equivalent position)'' following the terms ``officer, director or 
trustee'' in Sec.  2640.203(m). The agency pointed out that some 
nonprofit organizations do not actually use the terms ``officer,'' 
``director,'' or ``trustee'' to describe the organizational leadership 
but rather use other terms, such as ``council member.'' OGE has not 
adopted the recommendation of the commenter, because the exemption 
needs to reflect the terms of the statute itself, which specifies 
officer, director and trustee. OGE certainly is aware that some 
nonprofit organizations do not use the actual terms of section 208(a) 
in the titles of their officials, but this has never been the end of 
the inquiry into whether section 208 applies. In such cases, ethics 
officials must determine whether the position has the same legal 
responsibilities and characteristics as the positions described in 18 
U.S.C. 208(a). In some cases, the position does not correspond to an 
officer, director or trustee position because the position is solely 
advisory or honorary or otherwise does not carry the powers and 
fiduciary duties associated with officers, directors and trustees; in 
other cases, the position in question truly does entail the powers and 
duties of an officer, director or trustee within the meaning of the 
law. Agency ethics officials will need to engage in the same inquiry 
with respect to the coverage of the regulatory exemption, although of 
course no exemption would be needed if the agency determines that the 
employee does not hold any section 208 position in the first place. In 
OGE's experience, such questions typically can be resolved by 
consulting with counsel for the nonprofit organization and/or by 
examining the organization's governing documents.
    Other comments supported the proposed new exemption but requested 
that OGE provide guidance on a variety of subjects, including agency 
implementation of official assignments with outside organizations, as 
well as the application of conflict of interest requirements to 
employees serving in their personal, rather than official, capacity. 
While this final rule is not the place for such detailed guidance, OGE 
certainly will be available to agency ethics officials for assistance 
with the application of this and all other ethics rules and conflict of 
interest laws. As the Note following Sec.  2640.203(m) emphasizes, 
however, agency decisions to permit official participation in any 
particular outside organization will be informed by numerous legal, 
policy, and managerial considerations, and many of those considerations 
fall outside of OGE's area of expertise.
    Therefore, for the reasons explained above, the Office of 
Government Ethics is adopting the new regulatory exemption at 5 CFR 
2640.203(m). OGE is, however, making one revision to the language of 
the proposed rule: OGE is clarifying that the exemption applies not 
just to current positions but also to prospective positions as officer, 
director or trustee. OGE anticipates that some employees may have 
duties that could affect an organization in which they plan to serve in 
an official capacity in the future or that some employees might even 
occupy one position in the present (e.g., vice president) but have an 
arrangement to serve in another position in the organization in the 
future (e.g., president). In order to make clear that the exemption 
covers prospective service, the final rule will read ``nonprofit 
organization in which the employee serves (or is seeking or has an 
arrangement to serve) * * *'' Other than this revision, the final rule 
adopts the language of the proposed rule.

III. Matters of Regulatory Procedure

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 rule 
would not have a significant economic 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 regulation does not contain information collection 
requirements that require approval of the Office of Management and 
Budget.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
chapter 25, subchapter II), this final rule would not significantly or 
uniquely affect small governments and will not result in increased 
expenditures by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100 million or more (as adjusted for 
inflation) in any one year.

Congressional Review Act

    The Office of Government Ethics has determined that this rulemaking 
involves a nonmajor rule under the Congressional Review Act (5 U.S.C. 
chapter 8) and will, before the final rule takes effect, submit a 
report thereon to the U.S. Senate, House of Representatives and General 
Accounting Office in accordance with that law.

Executive Order 12866

    In promulgating this rule amendment, 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 Planning and Review. This rule has also been reviewed 
by the Office of Management and Budget under that Executive order. 
There should be no appreciable increase in costs to OGE or the 
executive branch of the Federal Government in administering this 
regulation, since it only adds to OGE's financial interests regulation 
a new regulatory exemption and a clarification of an existing 
exemption. Finally, this rulemaking is not economically significant 
under the Executive order and would not interfere with State, local or 
tribal governments.

Executive Order 12988

    As Director of the Office of Government Ethics, I have reviewed 
this final amendatory regulation in light of section 3 of Executive 
Order 12988, Civil Justice Reform, and certify that it meets the 
applicable standards provided therein.

List of Subjects in 5 CFR Part 2640

    Conflict of interests, Government employees.

    Approved: February 28, 2013.
Walter M. Shaub, Jr.,
Director, Office of Government Ethics.

    Accordingly, for the reasons set forth in the preamble, the Office 
of Government Ethics is amending 5 CFR part 2640 as follows:

PART 2640--INTERPRETATION, EXEMPTIONS AND WAIVER GUIDANCE 
CONCERNING 18 U.S.C. 208 (ACTS AFFECTING A PERSONAL FINANCIAL 
INTEREST)

0
1. The authority citation for part 2640 continues to read as follows:

    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

0
2. In Sec.  2640.102, paragraph (q) is revised to read as follows:


Sec.  2640.102  Definitions.

* * * * *
    (q) Sector mutual fund or sector unit investment trust means a 
mutual fund or

[[Page 14442]]

unit investment trust 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.
* * * * *

Subpart B--Exemptions Pursuant to 18 U.S.C. 208(b)(2)

0
3. In Sec.  2640.201, paragraphs (b)(1) and (2) are revised to read as 
follows:


Sec.  2640.201  Exemptions for interests in mutual funds, unit 
investments trusts, and employee benefit plans.

* * * * *
    (b) Sector mutual funds and sector unit investment trusts. (1) An 
employee may participate in any particular matter affecting one or more 
holdings of a sector mutual fund or a sector unit investment trust 
where the affected holding is not invested in the sector in which the 
fund or trust concentrates, and where the disqualifying financial 
interest in the matter arises because of ownership of an interest in 
the fund or unit investment trust.
    (2)(i) An employee may participate in a particular matter affecting 
one or more holdings of a sector mutual fund or a sector unit 
investment trust where the disqualifying financial interest in the 
matter arises because of ownership of an interest in the fund or the 
unit investment trust and the aggregate market value of interests in 
any sector fund or funds and any sector unit investment trust or trusts 
does not exceed $50,000.
    (ii) For purposes of calculating the $50,000 de minimis amount in 
paragraph (b)(2)(i) of this section, an employee must aggregate the 
market value of all sector mutual funds and sector unit investment 
trusts in which he has a disqualifying financial interest and that 
concentrate in the same sector and have one or more holdings that may 
be affected by the particular matter.
* * * * *

0
4. Section 2640.203 is amended by adding paragraph (m) to read as 
follows:


Sec.  2640.203  Miscellaneous exemptions.

    (m) Official participation in nonprofit organizations. An employee 
may participate in any particular matter where the disqualifying 
financial interest is that of a nonprofit organization in which the 
employee serves (or is seeking or has an arrangement to serve), solely 
in an official capacity, as an officer, director or trustee.

    Note to paragraph (m): Nothing in this paragraph shall be deemed 
independent authority for an agency to assign an employee to serve 
in an official capacity with a particular nonprofit organization. 
Agencies will make such determinations based on an evaluation of 
their own statutory authorities and missions. Individual agency 
decisions to permit (or not permit) an employee to serve in an 
official capacity necessarily involve a range of legal, policy, and 
managerial considerations, and nothing in this paragraph is intended 
to interfere with an agency's discretion to assign official duties 
and limit such assignments as the agency deems appropriate.

[FR Doc. 2013-05243 Filed 3-5-13; 8:45 am]
BILLING CODE 6345-03-P