General Administrative Regulations; Administrative Remedies for Non-Compliance, 76868-76891 [E8-30073]

Agencies

• DEPARTMENT OF AGRICULTURE
• Federal Crop Insurance Corporation

[Federal Register Volume 73, Number 244 (Thursday, December 18, 2008)]
[Rules and Regulations]
[Pages 76868-76891]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-30073]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400, 407, and 457

RIN 0563-AB73


General Administrative Regulations; Administrative Remedies for 
Non-Compliance

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the 
General Administrative Regulations; Administrative Remedies for Non-
Compliance to add additional administrative remedies that are available 
as a result of the enactment of section 515(h) of the Federal Crop 
Insurance Act (Act) (7 U.S.C. 1515(h)), make such other changes as are 
necessary to implement the provisions of section 515(h) of the Act, and 
to clarify existing administrative remedies.

DATES: Effective Date: This rule is effective January 20, 2009.

FOR FURTHER INFORMATION CONTACT: For further information, contact 
Cynthia Simpson, Director, Appeals, Litigation and Legal Liaison Staff, 
Risk Management Agency, United States Department of Agriculture, 1400 
Independence Avenue, SW., Room 4619, Stop 0806, Washington, DC 20250, 
telephone (202) 720-0642.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and budget (OMB) has determined that this 
rule is non-significant for the purposes of Executive Order 12866 and, 
therefore, it has not been reviewed by OMB.

Paperwork Reduction Act of 1995

    This rule does not constitute a collection of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

E-Government Act Compliance

    FCIC is committed to complying with the E-Government Act of 2002, 
to promote the use of the Internet and other information technologies 
to provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This rule contains no Federal mandates (under the 
regulatory provisions of title II of the UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.

Regulatory Flexibility Act

    FCIC certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. All 
similarly situated participants are required to comply with the same 
standard of conduct contained in the Act, the regulations published at 
7 CFR chapter IV, the crop policies, and the applicable procedures. For 
example, any producer, whether growing 10 acres or 10,000 acres, 
submits the same documentation for insurance and for a claim. All 
agents, whether selling and servicing five policies or a hundred and 
five policies, are required to perform the same tasks for each. The 
consequences for failure to comply with the standards of conduct are 
also the same for all participants and other persons regardless of the 
size of their business. A Regulatory Flexibility Analysis has not been 
prepared since this regulation does not have a significant impact on a 
substantial number of small entities, and, therefore, this regulation 
is exempt from the provisions of the Regulatory Flexibility Act (5 
U.S.C. 605).

Federal Assistance Program

    This program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.450.

Executive Order 12372

    This program is not subject to the provisions of Executive Order 
12372, which require intergovernmental consultation with State and 
local officials. See the Notice related to 7 CFR part 3015, subpart V, 
published at 48 FR 29115, June 24, 1983.

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988 on civil justice reform. The provisions of this rule will 
not have a retroactive effect. The provisions of this rule will preempt 
State and local laws to the extent such State and local laws are 
inconsistent herewith.

Environmental Evaluation

    This action is not expected to have a significant economic impact 
on the quality of the human environment, health, and safety. Therefore, 
neither an Environmental Assessment nor an Environmental Impact 
Statement is needed.

Background

    This rule finalizes changes made to 7 CFR part 400, subpart R, 
Administrative Remedies for Non-Compliance that was published by FCIC 
on May 18, 2007, as a notice of proposed rulemaking in the Federal 
Register at 72 FR 27981-27988. In the Administrative Remedies for Non-
Compliance, FCIC proposed to include provisions in its regulation that 
were enacted with the passage of the Agricultural Rick Protection Act 
of 2000 (ARPA). Through the enactment of section 515(h) of the Act in 
ARPA, Congress significantly strengthened FCIC's ability to combat 
fraud, waste and abuse by establishing a strong system of 
administrative actions that are now applicable to all participants in 
the Federal crop insurance program.
    Now, producers, agents, loss adjusters, insurance providers and 
their employees and contractors, and any

[[Page 76869]]

other persons who willfully and intentionally provide any false or 
inaccurate information to FCIC or to an approved insurance provider 
with respect to a policy or plan of insurance or willfully and 
intentionally failed to comply with a requirement of FCIC are subject 
to remedial administrative remedies. In addition to disqualification 
from participating in the Federal crop insurance program, producers 
will be disqualified from receiving benefits under other various United 
States Department of Agriculture programs. In addition, civil fines 
have been increased. Now a civil fine can be imposed for each violation 
and the civil fine is the greater of $10,000 or the amount of pecuniary 
gain obtained as a result of the false or inaccurate information 
provided or the noncompliance with a requirement of FCIC.
    The public was afforded 30 days to submit written comments after 
the regulation was published in the Federal Register. A total of 128 
comments were received from 17 commenters. The commenters were seven 
insurance services organizations, one grower association, four 
insurance providers, two law firms, one public citizen, one agent, and 
one government employee. The comments received and FCIC's responses are 
as follows:
    Comment: One commenter stated that FCIC has taken significant 
actions since the implementation of the Act in 2000 to reduce fraud, 
waste and abuse of the crop insurance program. The commenter strongly 
supports FCIC's efforts to combat waste, abuse and fraud in FCIC 
programs and believes that those who knowingly and willfully abuse the 
program must be punished.
    Response: FCIC will continue to take such actions as are necessary 
to improve program integrity.

Length of Comment Period

    Comment: Several commenters stated that the thirty-day comment 
period was inadequate. The commenters asked that the comment period be 
extended by sixty days because of the serious nature of the proposed 
rule and in order for other affected individuals to comment and to 
fully understand the legal exposure they could face under the proposed 
rule.
    Response: FCIC usually gives 30 or 60 day comment period depending 
on the rule. Because this rule is implementing a law that has been in 
effect since June 2000, FCIC made the decision not to extend the 
comment period.

Section 400.451 General

    Comment: A commenter stated that ``waste'' and ``abuse'' are 
neither offenses defined by statute or regulation and that FCIC never 
has defined in a regulation, contract, policy, or procedure, the 
conduct or actions that constitute ``waste'' and ``abuse.'' The 
commenter asked that FCIC define ``waste'' and ``abuse.''
    Response: Combating fraud, waste and abuse are the obligation of 
all Government agencies. The imposition of these sanctions is one means 
to combat fraud, waste and abuse. However, there are numerous other 
actions taken by FCIC to combat fraud, waste and abuse. However, in the 
context of this rule, fraud, waste and abuse are not grounds for the 
imposition of sanctions. Sanctions are imposed for violations of 
section 515(h) of the Act and other relevant statutory provisions. The 
terms fraud, waste and abuse are not used except in the context of a 
policy statement. Therefore, inclusion of separate definitions may 
confuse persons into believing that sanctions can be imposed for 
allegations of fraud, waste and abuse. This is supported by many of the 
following comments which suggest that fraud must be proven before a 
sanction under section 515(h) of the Act can be imposed. No change has 
been made.
    Comment: A commenter stated that a person may abuse the crop 
insurance program without providing false information or violating FCIC 
procedures.
    Response: The crop insurance program may still be abused by a 
person without providing false information or violating FCIC 
procedures. Abuse can occur in any number of ways and FCIC continuously 
reviews the program to tighten program requirements to prevent other 
types of abuse. However, this rule is intended to preclude the specific 
abuses associated with the providing of false or inaccurate information 
and failure to comply with a requirement of FCIC.
    Comment: A commenter stated Sec.  400.451(b) is overbroad as it 
expands the rule to persons outside of the crop insurance program. For 
example, an accountant knowingly falsifies an insured's Schedule F and 
an insurance provider overpays on an Adjusted Gross Revenue claim based 
on that Schedule F, the commenter asked whether the accountant is 
subject to the sanctions of Sec.  400.454. The commenter asked that 
FCIC precisely identify the persons to be covered by subpart R.
    Response: Section 515(h) of the Act specifically refers to a 
producer, agent, loss adjuster, insurance provider or ``other person'' 
that intentionally provides false or inaccurate information to FCIC or 
to an approved insurance provider with respect to a policy. In the 
example given, an accountant who knowingly provides false information 
on a Schedule F may be subject to sanction under Sec.  400.454. 
However, unless the accountant is otherwise participating in the crop 
insurance program, disqualification would not be applicable. However, 
the accountant could be subject to civil fines. Section 515(h) of the 
Act was intended to sanction anyone who willfully and intentionally 
provides false or inaccurate information, not just direct participants. 
Therefore, its scope could encompass any person. For example, an 
elevator operator who provides false weight receipts or the seed dealer 
who falsifies a sales receipt would also be subject to sanctions under 
section 515(h) of the Act.
    Comment: A commenter stated that by making the proposed rule 
applicable to ``any other persons who may provide information to a 
program participant,'' the FCIC was improperly expanding the scope of 
persons subject to administrative sanctions beyond what is authorized 
in the Act. In addition, the phrase, ``any other persons who may 
provide information'' was imprecise and, therefore, subject to 
ambiguous construction.
    Response: As stated above, section 515(h) of the Act authorizes the 
scope of the sanction to apply to other than just producers, agents, 
loss adjusters or insurance providers. Congress expressly refers to 
``other persons.'' Therefore, the scope of this rule is authorized and 
can apply to virtually anyone who may provide information that is false 
or inaccurate. Therefore, there is no ambiguity. However, as stated 
above, persons who may not be participating in the crop insurance 
program or other United States Department of Agriculture (USDA) 
programs would likely be subject to civil fines instead of 
disqualification.
    Comment: A commenter is concerned that the proposed rule exposes 
too many innocent persons to the threat of civil fines and sanctions 
without focusing on the real wrong-doers. The rule proposes to cover a 
vast number of ``participants in the federal crop insurance program'' 
as well as any other persons who may provide information to a program 
participant. In addition, the definitions of affiliate, participant, 
person, and principal are broad and far reaching and may subject 
innocent persons to the threat of civil fines and sanctions. The 
commenter recommends these

[[Page 76870]]

definitions exclude those not actively involved in the submission, 
purchase or receipt of benefits of crop insurance policies.
    Response: In order to be subject to the sanctions under section 
515(h) of the Act, FCIC must be able to prove that the person willfully 
and intentionally provided false or inaccurate information or willfully 
and intentionally failed to comply with a requirement of FCIC. 
Therefore, it is not possible for the sanctions to be imposed on 
innocent persons. Further, the standards for the imputing of improper 
conduct are the same as that applied in debarments and ensures that 
only those persons responsible for the violation are sanctioned. As an 
additional check and balance, persons have the right to contest any 
sanction before it is imposed before an Administrative Law Judge. This 
will ensure that the burden of proof has been met.
    Comment: Several commenters stated that the proposed rule made the 
rule retroactive in effect. In the preamble, FCIC states, ``the 
provisions of this rule will not have a retroactive effect.'' However, 
the proposed rule at Sec.  400.451(d) states that the ``failure to 
comply with a requirement'' is applicable as of the date the proposed 
rule become effective. But, the rule with respect to a false or 
inaccurate statement is applicable to any act or omission occurring 
after June 20, 2000. The rule and FCIC's explanation of it are 
inconsistent as to its retroactivity. Because Congress did not grant 
FCIC the authority to promulgate retroactive rules, they can only be 
applied prospectively. To impose penalties for past conduct is improper 
and unlawful. Because it is unclear as to its retroactivity, the rule 
violates Executive Order 12988. The proposed rule should be changed so 
that the regulation clearly has no retroactive effect. The commenters 
asked that the rule become effective on the date rule becomes final.
    Response: FCIC has clarified when the provisions of this rule 
become effective. There is confusion because section 515(h) of the Act, 
which contains the sanction provisions applicable to false or 
inaccurate information that are the subject of this rule, have been in 
effect since June 2000. Further, since that date, those statutory 
provisions have been used to impose sanctions against persons that have 
provided false or inaccurate information after June 2000 because the 
statutory provisions were not in conflict with the regulation sanction 
provisions that existed during that time. Therefore, false or 
inaccurate information provided between June 20, 2000, and the date 
this rule becomes effective will continue to be processed under section 
515(h) of the Act and the regulations in effect prior to the date this 
rule becomes effective. For false or inaccurate information provided 
after the date this rule is effective will be processed under this 
rule.

Section 400.452 Definitions

A. In General

    Comment: A commenter stated that the proposed rule expanded the 
definition of ``person'' and added 17 more definitions which apply only 
to this subpart. FCIC does not describe the sources of many of the 
definitions.
    Response: FCIC expanded Sec.  400.452 to include terms used in the 
proposed rule. Most of the definitions will refer to terms and 
definitions contained in other regulations, such as the Common Crop 
Insurance Policy Basic Provisions to ensure consistency. With respect 
to the other definitions, FCIC has defined the terms in such a manner 
as to achieve the purpose of this rule. The rulemaking procedures do 
not require that administrative agencies document the source of all of 
its information.
    Comment: Several commenters make statements regarding removing (1) 
vague and ambiguous language, and (2) defining terms FCIC normally or 
routinely uses but has failed to define, such as ``benefit,'' 
``fraud,'' ``waste and abuse,'' ``wrongdoing,'' and ``knows or has 
reason to know.'' A commenter stated that the word ``benefit'' is used 
in the regulation but not defined. The proposed rule suggests benefit 
is not limited to monetary gains. The commenters also stated that if 
FCIC intends to impose sanctions for persons engaged in ``waste and 
abuse,'' the terms must be adequately defined to provide notice of the 
prohibited conduct. One commenter also stated that FCIC should add the 
definition of ``knows or has reason to know'' contained in 7 CFR 
1.302(o) to the proposed rule and make conforming changes to the 
balance of the proposed rule consistent with the text of this added 
definition.
    Response: FCIC has revised the rule to add definitions of 
``benefit,'' and ``knows or has reason to know.'' ``Benefit'' is 
defined as any advantage, preference, privilege or favorable 
consideration a person receives from another person in exchange for 
certain acts or considerations. A benefit may be monetary or non-
monetary. The definition of ``knows or should have known'' will be the 
same as that contained in 7 CFR 1.302(o). Further, this rule does not 
sanction persons for ``fraud, waste or abuse.'' This rule imposes 
sanctions for violations of section 515(h) of the Act and other 
statutory provisions. To the extent that such statutory provision 
includes some elements of fraud, waste and abuse, the prohibited 
conduct will be specified therein.

B. Revisions to Specific Definitions

1. Affiliate
    Comment: A commenter stated that FCIC's definition of ``affiliate'' 
is inconsistent with the Standard Reinsurance Agreement's (SRA) 
definition of ``affiliate.'' The commenter stated that the definition 
should be amended to mirror the SRA's focus on the control of 
management of the book of business.
    Response: While the narrower definition is appropriate for the SRA, 
such a narrow definition is not appropriate for this rule, which is 
intended to determine who a person is for the purposes of this rule. 
Under the definition of ``person'' affiliates are also considered as 
part of the person if the requirements are met. The main reason for 
defining the term ``affiliate'' in this rule is to put everyone on 
notice that the term may be used differently in this rule than it is in 
other rules or agreements. No change has been made.
    Comment: A commenter stated that the definition of ``affiliate'' is 
broad and ambiguous because it uses the term ``same or similar 
management'' when describing a presumably affiliated business entity. 
The commenter suggested that the ambiguity can be cured by using either 
the accepted definition under federal banking and securities law or 
alternatively by substituting the term ``identical or substantially 
identical management'' for ``same or similar management.''
    Response: The definition was obtained from the definition of 
``affiliate'' in USDA's suspension and debarment regulations published 
at 7 CFR part 3017. Since a disqualification has a similar effect to a 
debarment, it was determined that the treatment of affiliates and the 
definition should be the same for both remedial sanctions. No change 
has been made.
2. Participant
    Comment: A commenter stated that the definition of ``participant'' 
was unduly broad in that it contained no materiality or other threshold 
test for determining the extent of benefit that makes a person a 
participant. As written, someone who does not have a substantial 
beneficial interest for purposes of the crop insurance policy could be 
subject to a sanction.
    Response: Any person, regardless of his interest for purposes of 
the crop

[[Page 76871]]

insurance policy, who willfully and intentionally makes a false 
statement or fails to comply with a requirement of FCIC, may be subject 
to sanction. As stated above, such person may have no connection to the 
crop insurance program other than to provide certain information that 
is then provided to FCIC or the insurance provider. If such person 
willfully and intentionally provides false or inaccurate information, 
such person can be subject to the sanctions provided in this rule even 
if they derive no benefit from the crop insurance program. Materiality 
does not require monetary damages. The false information can be 
material if it adversely affects program integrity, including damage to 
the program's reputation. Since the gravity must be considered in 
determining whether to impose a sanction, FCIC has revised the 
provision to include a materiality requirement and added a definition 
of ``material.''
    Comment: A commenter suggested that a materiality test, percent 
interest or monetary level of benefit be used as a threshold for 
defining ``participant.''
    Response: As stated above, materiality does not require monetary 
damages or benefits. The false information can be material if it 
adversely affects program integrity, including damage to its 
reputation. Further, FCIC has revised the provisions to include a 
materiality requirement when the gravity of the violation is taken into 
consideration and defined the term ``material.''
3. Preponderance of the Evidence
    Comment: A commenter stated that intentional, willful conduct and 
fraud are subject to special rules regarding proof in civil litigation. 
Fraud requires ``clear and convincing proof to establish liability.'' 
This is a higher standard than that required under the proposed rule by 
a preponderance of the evidence. Because fraud connotes intentional 
misconduct the party charging that conduct is required to prove it to a 
greater certainty. The commenter stated further that it is improper to 
reduce the burden of proof by the government when alleging fraud. No 
justification has been given that alters longstanding rules applicable 
to civil litigation. Furthermore, intentional and willful acts should 
be defined to make clear that the person knew the falsity of the 
statement when made and intended that FCIC act on the basis of the 
intentional and willful misstatements. Intent and willfulness also must 
be established by clear and convincing evidence.
    Response: Section 515(h) of the Act does not require a showing of 
fraud. The standard is whether a person willfully and intentionally 
provided false or inaccurate information. The standard of proof was 
derived from USDA's suspension and debarment regulations because of the 
similarity of the effects of disqualification and debarment. Further, 
debarment must also show evidence of willfulness and knowingly, which 
is similar to the standards contained in section 515(h) of the Act. The 
causes for debarment need only be established by a preponderance of the 
evidence. In addition, this is not a civil litigation. This is an 
administrative action taken to protect the integrity of the program and 
misuse of taxpayer dollars. Further, this has been the standard of 
proof that has been applied since the application of these sanctions in 
1993. Section 515(h) of the Act does not contain any requirement that 
the person who provides the false information intended for FCIC to rely 
on such information. FCIC does not have to prove fraud. FCIC only needs 
to prove that a person willfully and intentionally provided false or 
inaccurate information or failed to comply with a requirement of FCIC.
    Comment: A commenter stated that the definition of ``preponderance 
of the evidence'' needs to be revised or clarified to clearly state 
that FCIC has the burden of proof to produce evidence to meet its 
preponderance of the evidence.
    Response: FCIC has revised Sec.  400.454(a) to clarify that FCIC 
bears the burden of proving that the person willfully and intentionally 
provided false or inaccurate information or failed to comply with a 
requirement of FCIC.
4. Principal
    Comment: A commenter stated that the definition of ``principal'' 
was broad, and includes persons whom the law does not recognize as a 
principal. In addition, while the concept of ``control'' is defined by 
case law, the concept of ``critical influence'' is not. Theoretically, 
a data processor has ``critical influence'' because the incorrect entry 
of data may have a significant impact on liability. The commenter asked 
whether FCIC contends that such persons are ``principals'' under the 
rule. The commenter also questioned who is a ``key employee'' and what 
are the indicia of a ``key employee.'' The commenter asked who will 
determine whether an employee is a ``key employee''--the insurance 
provider or FCIC?
    Response: The definition of principal has been broadened in this 
rule because insurance providers have routinely delegated many of their 
obligations and responsibilities to persons who would not normally have 
the ability to direct the activities of the business. The definition of 
``principal'' is intended to encompass such persons who may not have 
the title, but who have functional influence or control over some 
activities of the insurance provider. This delegation is not unique to 
the insurance providers. Insureds may also delegate their obligations 
to other persons, such as farm managers. The use of the term ``key 
employee'' is intended to be a catch-all term for employees that have 
primary management or supervisory responsibilities or have the ability 
to direct activities or make decisions regarding the crop insurance 
program. FCIC would initially decide whether an employee is a key 
employee based upon the person's responsibilities in the entity when 
determining whether to file a complaint. However, it would be an 
Administrative Law Judge that will ultimately decide whether the 
employee is subject to sanction under this rule.
    Comment: A commenter said that the definition of ``principal'' was 
broad and ambiguous. This problem is magnified by the use of ``key 
employee'' (an undefined term with no commonly accepted legal 
understanding) and ``critical influence on or substantive control over 
the activities of the entity'' (also undefined and not susceptible to 
common legal interpretations from other bodies of law). The commenter 
suggested that FCIC could cure the ambiguity to defining ``principal'' 
by citing position names commonly used in business and limiting the 
scope of the definition to only certain functions with the 
organization. The commenter suggested the following definition for 
``principal'': ``A person who is an officer, director, owner or partner 
within an entity with primary management or supervisory 
responsibilities over the entity's Federal crop insurance activities.''
    Response: FCIC is attempting to avoid being locked into titles 
because they do not fit all the business entities that can be involved 
directly or indirectly with the crop insurance program. This is why the 
term ``key employee'' has been added. This definition is trying to 
identify those persons who perform or exert some type of management or 
control or decision making over at least some activities related to the 
crop insurance program. Those are the persons who will be treated as 
principals. Given the practice of delegation that occurs in the 
insurance and farming industries, the definition would be too limiting 
to name the specific titles.

[[Page 76872]]

5. Requirement of FCIC
    Comment: Several commenters stated that the definition of 
``requirement of FCIC'' is overly board, ambiguous, and vague. As 
written, the rule could include informal communications, such as e-
mails, from RMA personnel writing without actual approval by 
supervisory or managerial personnel with the agency. The definition 
does not define the form in which the written communication must take. 
Thus, a requirement of FCIC could take the form of any writing, 
including an e-mail. The commenter asked what types of communications 
are included in ``other written communications.''
    Response: FCIC has revised the definition to specify that 
requirements will be contained in formal communications such as 
regulations, procedures, policy provisions, reinsurance agreements, 
memorandums, bulletins, handbooks, manuals, findings, directives or 
letters signed or issued by persons who have been provided the 
authority to issue such communications on behalf of FCIC. The 
definition is also revised to clarify that e-mails are not formal 
communications although they can be used to transmit formal 
communications.
    Comment: Several commenters stated that the definition of 
``Requirement of FCIC'' does not specify from whom within the FCIC the 
written communication may come. The written communication could come 
from any FCIC employee, regardless of status or level, to anyone 
associated with the insurance provider.
    Response: As stated above, the provision as been revised to specify 
that written communications that will qualify as a ``requirement of 
FCIC'' will be originated by a FCIC employee that has been delegated 
the authority to issue such communications on behalf of FCIC. The 
current delegations are found at https://www.rma.usda.gov/news/managers/
2000/PDF/mgr-00-016-1.pdf, https://www.rma.usda.gov/news/managers/2000/
PDF/mgr-00-016-2.pdf, https://www.rma.usda.gov/news/managers/2000/PDF/
mgr-00-016-3.pdf, and these delegations include documents that would 
qualify as ``requirements of FCIC.'' To the extent that other persons 
may also receive delegated authority, other bulletins containing such 
delegation will be issued.
    Comment: A commenter stated that no ``other written communication 
from FCIC'' should qualify as a ``Requirement of FCIC'' unless FCIC has 
sent the communication to the insurance provider's designated 
recipients. The commenter pointed out that the SRA, in Appendix II, 
paragraph 6, requires each insurance provider to designate persons with 
authority to receive written communications from FCIC.
    Response: To the extent that the ``requirement of FCIC'' is in the 
form of letters and other individual communications, such documents 
will be provided to the designated recipients of the insurance 
providers. However, documents such as regulations, procedures, 
bulletins, reinsurance agreements, etc. may also be considered 
requirements of FCIC under certain circumstances. Such documents will 
continue to be released in the customary manner.
    Comment: A commenter suggested the phrase ``other written 
communications from FCIC'' be removed or at least restricted to require 
that the FCIC official sending the ``other written communication'' have 
express authority to send the communication and require that the 
communication be sent to the insurance provider's designee for the 
specifically stated type of communication.
    Response: As stated above, FCIC has previously delegated persons to 
provide written communication on behalf of FCIC. FCIC will issue other 
bulletins if other persons will be delegated this authority. Further, 
as stated above, to the extent that such communication is a letter or 
other such individual communication, such communication will be sent to 
the insurance provider's designee. However, all other communications 
will be released in the customary manner.
    Comment: One commenter questioned whether the Common Crop Insurance 
Policy falls within the definition of requirement of FCIC. The 
commenter asked if the Common Crop Insurance Policy is a requirement of 
FCIC only for agents, adjusters, and producers because the SRA's remedy 
applies only to insurance providers. This same conundrum exists for 
various handbooks and manuals.
    Response: As stated in the rule, documents such as the Common Crop 
Insurance Policy are considered a requirement of FCIC unless such 
documents contain their own sanctions for violations. Further, even if 
such documents contain sanctions, they may still be considered a 
requirement of FCIC if there are multiple violations of the same 
provision or multiple violations of different provisions. FCIC has 
clarified that the remedial sanction is in addition to any other remedy 
contained in such document. The requirement of FCIC will only apply the 
persons to whom the document applies. For example, all regulations, 
including the Common Crop Insurance Policy, are applicable to insurance 
providers, agents, loss adjusters, and producers. However, the SRA is 
only applicable to insurance providers. The question will be whether 
the person is legally obligated to comply with the document through the 
force of law or contract.
    Comment: One commenter asked: (1) Who is the arbiter of whether the 
``breach rises to the level where remedial action is appropriate;'' (2) 
what standard is used to make a determination that a breach occurred 
under ``requirement of FCIC;'' and (3) whether materiality of the 
breach or injury to FCIC is a consideration for ``requirement of 
FCIC.''
    Response: FCIC will initially determine whether a breach rises to 
the level where remedial action should be taken when it issues the 
complaint. However, persons have the ability to contest any proposed 
sanction before an Administrative Law Judge, who will be the ultimate 
arbiter. Further, as stated above, the rule states the standards 
applicable. For a document that has its own remedy for a violation, 
such document will only be considered a requirement of FCIC when there 
are multiple violations of the same or different provisions. If the 
document is directed to a specific person or group of persons, or does 
not contain a remedy for a violation, and requires such person or 
persons to take or cease from taking a specific action, the document is 
considered a requirement of FCIC. As stated above, FCIC has revised the 
provisions to include materiality, which applies to both false or 
inaccurate statements and failing to comply with a requirement of FCIC. 
However, as stated above materiality does not require monetary damages. 
The false information or the failure to comply can be material if it 
adversely affects program integrity, including damage to the crop 
insurance program's reputation.
    Comment: One commenter stated that definition of ``requirement of 
FCIC'' states that a breach will not be considered a requirement of 
FCIC unless the breach rises to the level where remedial action is 
appropriate. The proposed rule imposes a subjective standard of 
reviewing conduct. The commenter asked at what level does conduct rise 
to ``the level where remedial action is appropriate.''
    Response: The rule makes it clear that when the communication has 
its own remedy there must be multiple violations before the conduct 
arises to the level where remedial action, in addition to the remedy 
contained in the

[[Page 76873]]

communication, is necessary. With respect to other communications, 
there is a subjective element. However, as stated above, the gravity of 
the violation must be taken into consideration when determining whether 
to impose a sanction, which would include whether conduct arises to the 
level where remedial action is appropriate. In addition, the ultimate 
decision maker regarding whether the conduct arises to the level where 
remedial action is necessary will be the Administrative Law Judge. For 
the purpose of clarity, FCIC has used the term ``violation'' in place 
of ``breach'' because breach may mistakenly imply that the definition 
only applies to contracts or agreements when the definition clearly 
refers to other types of documents.
    Comment: A few commenters stated that the definition of 
``requirement of FCIC'' includes not only regulations and policy 
provision, but also procedures and other written communications from 
FCIC. The proposed rule does not address the potential conflicting 
nature of these requirements. It also imposes the same sanctions for 
violating non-binding informal procedures and communications as for 
violating binding rules and regulations. Neither the law nor the 
Administrative Procedures Act gives the same type of formality, 
equality or deference to these types of agency decisions.
    Response: To the extent that there is a conflict between the 
regulations, policy provisions, and procedures, the regulations resolve 
such conflict in the order of priority. To the extent that other 
written communications may be in conflict, any provision that has the 
force of law, such as statutory or regulatory provisions, would take 
precedence. Further, neither the Act nor the Administrative Procedures 
Act precludes the use of any particular form of communication to impose 
requirements on a person. If FCIC has the authority to require that 
certain action be done or ceased, the Act provides the authority to 
provide sanctions for non-compliance. The nature of the crop insurance 
program makes it impractical to put all requirements in regulations or 
reinsurance agreements. Circumstances may arise during the year that 
requires immediate action and FCIC must have the means to ensure such 
action is taken. In determining whether to impose a sanction, FCIC must 
look at the nature of the violation. If the person fails to take a 
specific action required by FCIC or FCIC mandates that it cease a 
specific action, it does not matter the form of the communication. The 
person is required to comply and failure to comply can result in the 
imposition of sanctions.
    Comment: One commenter is concerned that a person without access to 
FCIC's regulations, policies, procedures or other written 
communications and those who may have misinterpreted those regulations, 
policies and procedures, may be subject to sanctions. The commenter 
stated that the definition should include regulations, policies, 
procedures or other written communications the person knew or should 
have known or had received a specific notice of alleged violation.
    Response: As stated above, sanctions can only be imposed for a 
violation of requirement of FCIC if such requirement is applicable to 
the person. If applicable, the person should have notice of the 
requirement. For example, bulletins are not applicable to producers 
unless such bulletin is provided to the producer or directs the agent 
or insurance provider to provide such bulletin to the producer. In 
addition, the gravity of the violation will be taken into consideration 
before imposing any sanction. No change has been made.
    Comment: One commenter stated that, as proposed, the FCIC has 
virtually unlimited discretion in determining what constitutes a 
``requirement.'' Insurance providers are often forced to make on the 
spot interpretations of ambiguous regulations without any guidance from 
FCIC, only to have FCIC later determine that the insurance provider's 
interpretation was incorrect. Allowing FCIC to go one step further and 
disqualify an insurance provider because it disagrees with the 
insurance provider's interpretation of an ambiguous ``requirement,'' is 
unreasonable, unworkable, and unfair.
    Response: FCIC does not disqualify an insurance provider because it 
disagrees with the FCIC. If FCIC determines that an insurance provider 
has made an incorrect interpretation, it would notify the insurance 
provider of its misinterpretation and request that any actions taken 
based on the misinterpretation be corrected. Sanction would only be 
considered if the insurance provider does not comply with FCIC's 
request. Further, if the insurance provider believes that FCIC's 
interpretation is incorrect or that it does not have the authority to 
require the specific action, it can always appeal FCIC's action to the 
Civilian Board of Contract Appeals. No sanction could be imposed during 
this appeal process.
6. Violation
    Comment: One commenter stated that the definition of ``violation'' 
leaves far too much room for interpretation as to what constitutes a 
single violation and what results in multiple violations. For example, 
assume that a farmer submits a single claim under his policy, but that 
the claim involves three separate units of insurance. The farmer 
submits three false production worksheets in connection with the one 
claim. The commenter asked whether the farmer committed one violation 
or three violations.
    Response: To be subject to a sanction, the person must have 
willfully and intentionally provided false or inaccurate information. 
Each false or inaccurate piece of information would constitute a 
violation. Therefore, if in the acreage report the producer falsely 
reports the number of acres in the unit and the share, this would be 
two violations. In the example given, the farmer has committed four 
violations. The proposed rule defines violation as ``each act or 
omission'' made by a person that satisfies all required elements for a 
sanction is a violation. The farmer signed his name on three separate 
production worksheets and one claim, four times he ``certified'' the 
information provided, to the best of his knowledge to be true and 
complete; when in fact, he knew the information was false.
7. Willful and Intentional
    Comment: One commenter stated that ``willful and intentional'' acts 
should be defined to make clear that the person knew the falsity of the 
statement when made and intended that FCIC act on that misstatement.
    Response: A ``willful and intentional'' act is providing 
information by a person who had ``knowledge that the statement was 
false or inaccurate at the time.'' The requirement that the person 
``intended that FCIC act on that misstatement'' is an element of fraud. 
However, under section 515(h) of the Act, to impose a sanction, the 
person only needs to have willfully and intentionally provided false or 
inaccurate information. The term ``fraud'' is not found in section 
515(h) of the Act and if Congress wanted to require reliance by FCIC as 
an element, it could have so required. No change has been made.
    Comment: One commenter stated that the definition ``Willful and 
intentional'' is incomplete and inaccurate as a standard of proof for 
the conduct under the proposed rule. Intent and willfulness must be 
established by clear and convincing evidence.
    Response: The general standard of proof in administrative cases is 
preponderance of the evidence. This is consistent with USDA's 
suspension and

[[Page 76874]]

debarment regulations, which serve a similar purpose. Further, this has 
been the standard of proof that has been applied since the application 
of these sanctions in 1993. No change has been made.
    Comment: One commenter stated that FCIC should clearly require that 
scienter must be proven with respect to willful and intentional 
statements prosecuted under the rule to ensure that prosecutions are 
confined to fraudulent statements or acts or omissions, rather than 
non-malicious acts or omissions.
    Response: In the definition of ``willful and intentional,'' FCIC 
has included the requirement that the person know that the statement 
was false or inaccurate at the time the statement was made or the 
person know that the act or omission was not in compliance with a 
requirement of FCIC at the time the act or omission occurred. 
Therefore, sanctions will not be imposed for innocent mistakes. 
However, maliciousness is not a standard required by the Act. FCIC has 
structured these provisions to fully comply with the requirements 
imposed in the Act. No change has been made.
    Comment: One commenter stated that the definition of ``willful and 
intentional'' deviates from the common law meaning of those terms, and 
specifically nullifies a showing of malicious intent, an element of 
common law fraud. The commenter further states that fraud is the very 
target of 7 U.S.C. 1515(h) and that FCIC may lack the authority to 
expand the definition of willful and intentional to include conduct 
outside the common understanding of fraud and to impute knowledge from 
one individual to another.
    Response: Section 515(h) only requires that the person willfully 
and intentionally provide a false or inaccurate statement or fail to 
comply with a requirement of FCIC before a sanction can be imposed. 
Section 515(h) does not use the term ``fraud'' and that term's other 
connotations. FCIC has studiously attempted to stay within the 
requirements of the Act. To that end, FCIC has used the common 
definitions and common law to determine the meaning of ``willful and 
intentional.'' This rule contained the same meaning as has been given 
the term since FCIC began doing disqualifications after the enactment 
of the Federal Crop Insurance Reform Act of 1994. With respect to the 
imputation of knowledge, FCIC has used the Department's debarment 
regulations as guidance because the burdens and consequences are 
similar.
    Comment: One commenter stated that for the definition of ``willful 
and intentional'' FCIC does not specifically define the words 
separately, and FCIC does not state the source of this definition. FCIC 
also excludes the showing of malicious intent as unnecessary. FCIC 
includes ``the failure to correct the false or inaccurate statement 
when its nature becomes known to the person who made it'' and includes 
acts of omission. These additions force agents and agencies to review 
information for past years, or they may be subject to sanctions.
    Response: Defining the words separately would not change the 
meaning or bring more clarity. The terms will be given their common 
meaning. The dictionary defines ``willful'' as ``intentional, or 
knowing, or voluntary.'' ``Intentional'' is defined as ``done 
purposely.'' FCIC has also looked to the body of established law 
regarding the meaning of the terms for the purposes of this rule. There 
is no requirement in the Act for maliciousness intent. The Act only 
requires that a person willfully or intentionally provide false or 
inaccurate information. Therefore, requiring a person to know the 
information was false or misleading and electing to provide it anyways 
satisfies the common meaning of the terms. Further, agents are not 
required to review information for past years. Agents will only be 
subject to sanctions if they knew the information was false or 
inaccurate at the time it was provided or if they discover it later and 
they fail to do anything about it. No change has been made.
    Comment: One commenter stated that the definition of ``Willful and 
intentional'' should be defined to make clear that the actor knew the 
falsity of the statement when made and intended that FCIC act on the 
basis of the intentional misstatements.
    Response: As stated above, there is no requirement that the person 
intended FCIC to act on the false information in section 515(h) of the 
Act. To be subject to sanctions, the person only needs to have 
willfully and intentionally provided false or inaccurate information to 
FCIC or an approved insurance provider. Reliance of the misstatement is 
an element of fraud, which as stated above, is a term that is not found 
in section 515(h) of the Act.
    Comment: One commenter stated that FCIC must establish a clear 
indication of how intent will be established with respect to 
demonstrating whether a statement, act or omission is willful and 
intentional. A false or inaccurate statement or a noncompliant act or 
omission alone does not rise to willful and intentional and additional 
evidence that clearly establishes that a person had sufficient 
knowledge is necessary before imposing sanctions.
    Response: The definition of ``willful and intentional'' makes it 
clear that the person must have knowledge of the falseness or 
inaccuracy of the information. Unless FCIC can establish the person has 
such knowledge no sanction under section 515(h) of the Act can be 
imposed. Further, FCIC is not alone in making these decisions. Any 
person subject to a proposed sanction has a right to contest the 
sanction before an Administrative Law Judge. The Administrative Law 
Judge will determine whether FCIC has met its burden before any 
sanction is imposed.
    Comment: One commenter stated that with no showing of intent 
coupled with the provision that sanctions may be imposed regardless of 
whether FCIC or the insurance provider sustained monetary losses places 
all parties in jeopardy of severe punishment for seemingly innocuous 
mistakes that may have caused little to no harm.
    Response: Sanctions cannot be imposed for innocuous mistakes. There 
must be evidence of willfulness and intent. Further, the fact that no 
monetary losses may occur does not excuse the improper conduct. All 
false or inaccurate statements have the capacity to adversely affect 
program integrity.
    Comment: One commenter stated that while the definition may be 
clear in regards to willful, it is not clear from the definition that 
there is actually a requirement of intention at all. The commenter 
suggested that the definition should include knowledge of the 
inaccuracy and that an intent, malicious or otherwise be associated 
with the inaccuracy. The definition should be confined to ``material'' 
misrepresentations or omissions.
    Response: ``Intentional'' is defined as ``done purposely.'' FCIC's 
definition of ``willful and intentional'' is consistent with that 
definition in that it requires the person to have provided the 
information to FCIC or an approved insurance provider even though the 
person had knowledge that the information was false or inaccurate at 
the time that the statement was made and still elected to provide the 
information to FCIC or the approved insurance provider. However, as 
stated above materiality has been added to the rule but it does not 
require monetary damages.

[[Page 76875]]

Section 400.454 Disqualification and Civil Fines

A. In General

    Comment: One commenter stated that ARPA required that each policy 
or plan of insurance to provide notice of the sanctions that could be 
imposed under ARPA for willfully and intentionally providing false or 
inaccurate information to FCIC or failing to comply with a requirement 
of FCIC. FCIC has failed to comply with 1515(h)(5).
    Response: Section 27 of the Common Crop Insurance Policy Basic 
Provisions (Basic Provisions) (7 CFR 457.8) states that if the 
producer, or someone assisting the producer, has intentionally 
concealed or misrepresented a material fact, the producer could be 
subject to the remedial sanctions in 7 CFR part 400, subpart R, which 
includes disqualification and civil fines. However, FCIC has revised 
this rule to include more specific language in section 27 of the Basic 
Provisions and added a new section 22 to the Group Risk Plan Common 
Policy (7 CFR 407.9) (GRP policy).

B. Section 400.454(a)

    Comment: One commenter has concerns that FCIC is not providing 
producers with the appropriate notice of sanctions as stated under 
section 515(h)(5). The commenter stated that section 454(a) lacks the 
required notice to policyholders. Specifically, the commenter stated 
that the proposed language in section 454(a) does not appear to provide 
producers the required notice of the sanctions available under 7 U.S.C. 
1515(h)(3) as required by 7 U.S.C. 1515(h)(5). That in its present form 
section 454(a) does not notify producers that they can be disqualified 
for up to five years from specific programs or that the potential fine 
could be greater than $10,000.
    Response: It is not the specific intent of Sec.  400.454(a) to 
provide producers notice of sanctions available under section 515(h)(3) 
of the Act. It is intended to provide all persons of the possible 
consequences of willfully and intentionally provided false or 
inaccurate information or willfully and intentionally failing to comply 
with a requirement of FCIC. As stated above, FCIC has revised the Basic 
Provisions and the GRP policy to ensure that producers receive the 
required notice.
    Comment: Several commenters stated that the decision to initiate 
administrative sanctions should not rest solely with the FCIC Manager, 
but that it should require a determination by the FCIC Board of 
Directors.
    Response: Section 515(h) of the Act confers the authority to impose 
sanctions on the Secretary, who has subsequently authorized the Manager 
of FCIC to initiate the process when the rule was originally 
promulgated in 1993 (58 FR 53110). Since this process has been in place 
since 1993 and there have not been any allegations that the Manager has 
abused this authority, the Secretary has elected to allow the authority 
to initiate sanctions to remain with the Manager of FCIC. In addition, 
although the Manager initiates the process, it is the Administrative 
Law Judge that ultimately decides whether there is sufficient evidence 
to impose a sanction under section 515(h) of the Act.
    Comment: Several commenters stated that FCIC uses an inappropriate 
standard of proof, preponderance of the evidence, for the imposition of 
any penalty. One commenter stated that the standard of guilt should 
rest with the party alleging such violation. Instead of requiring a 
mere `preponderance of evidence' the standard of proof should be clear 
and convincing evidence. There is no justification for holding the crop 
insurance industry to a lower standard of guilt.
    Response: As stated above, this is the same standard applied by the 
Department for debarments. Because the effects are similar and both can 
require willful and intentional conduct, it is appropriate to apply 
that standard to sanctions under this rule. Further, this has been the 
standard of proof that has been applied since the application of these 
sanctions in 1993. No change has been made.
    Comment: Several commenters stated that the proposed rule imposes a 
low evidentiary threshold for the imposition of sanctions. The burden 
of proof should be clear and convincing evidence as opposed to a 
preponderance of the evidence. The rule only authorizes sanctions for 
willful and intentional conduct. Such a standard connotes the elements 
of fraud. In almost every instance, liability for fraud cannot be 
predicated on a mere preponderance of the evidence; rather, a finding 
based on at least clear and convincing evidence is required. Therefore, 
the draft regulations should be amended to reflect a burden of proof of 
clear and convincing evidence. Commenters stated that FCIC may lack the 
authority to adopt a burden of proof lower than the clear and 
convincing standard of proof in fraud cases. One commenter stated that 
to establish a prima facie claim of fraud, the party alleging it must 
prove by clear and convincing evidence that there was a false 
representation or concealment of a material fact, calculated with the 
intent to deceive. One commenter stated that the rule potentially 
expands the liability of actions to a degree not enforceable in civil 
litigation.
    Response: Section 515(h) of the Act does not require a finding of 
fraud. Sanctions can be imposed for willfully and intentionally 
providing false or inaccurate information. Further, as stated above, 
this is the same standard applied by the Department for debarments. 
Because the effects are similar and both can require willful and 
intentional conduct, it is appropriate to apply that standard to 
sanctions under this rule. Further, this has been the standard of proof 
that has been applied since the application of these sanctions in 1993. 
No change has been made.

C. Section 400.454(b)

    Comment: One commenter stated FCIC needs to provide a clear 
indication of how intent will be established as to whether a statement, 
act or omission is willful and intentional. Further, scienter must also 
be established to a statement, act or omission that is willful and 
intentional.
    Response: As stated above, FCIC has defined ``willful and 
intentional'' to be consistent with the common definition of these 
terms and case law. Scienter is not a specific requirement. No change 
has been made.
    Comment: Several commenters stated that the proposed rule must be 
confined to material misrepresentation or omissions that cause 
financial loss. One commenter stated that it was the intent of 
Congress. A commenter stated that FCIC should confine the proposed rule 
to statements, acts or omissions that cause injury or damages, 
consistent with general principles of law relative to fraud.
    Response: FCIC has revised the provisions to require consideration 
of materiality when considering whether to impose a sanction and 
defined the term ``material.'' However, as stated above materiality 
does not require monetary damages. The false information can be 
material if it adversely affects program integrity, including damage to 
the crop insurance program's reputation or providing or potentially 
providing benefits that would otherwise not be available. Further, as 
stated above, fraud is not required to be proven before a sanction can 
be imposed. There only needs to be a finding that a person willfully 
and intentionally provided false or inaccurate information or failed to 
comply with a requirement of FCIC.

[[Page 76876]]

D. Section 400.454(c)

    Comment: One commenter stated that ``gravity'' is subjective and 
vague. It did not tell the public the standard to be applied by FCIC 
when measuring the severity of a violation. The commenter suggested 
that FCIC adopt the list of factors under 7 CFR 1.335(b) or develop its 
own list of mitigating factors to be applied when considering the 
gravity of a violation.
    Response: FCIC has reviewed the list of factors used in the 
assessment of sanctions in 7 CFR 1.335(b), and has modified the list to 
be more applicable to the crop insurance program and included it in 
Sec.  400.454(c).
    Comment: One commenter has concerns that cumulative penalties could 
exceed the gravity of the violation. The commenter urged FCIC to 
establish appropriate penalties to violations that are always 
commensurate to the gravity of such violations.
    Response: As stated above, FCIC has adopted factors, with 
modification, used by Department in assessing sanctions. However, 
Congress specifically revised section 515(h) of the Act to allow the 
imposition of a separate sanction for each violation. The gravity of 
each violation will be taken into consideration when imposing a 
sanction.
    Comment: A commenter stated that increased penalties demand an 
equally elevated system of judgment process and identification of 
degree. The rule's definition of degree of offense and penalty extends 
to others who may be oblivious to the error of intention to submit 
false information. For example, the agent who forwards an actual 
production history (APH) which was completed and signed by an insured 
can be totally unaware of erroneous information provided by that 
insured, unless the submission is blatantly different from other 
producers in the area. Cumulative penalties could result in 
disproportionate fines in relation to the offense. Therefore, a minor 
infraction could have a major impact.
    Response: An agent that transmits an APH that is false can only be 
sanctioned if the agent knew or should have known the information was 
false and transmitted it anyway. If the agent had no way to know the 
information was false, no sanction can be applied. However, the 
producer that provided the false APH may be sanctioned for providing 
the false information to the agent. In such case, the gravity of the 
violation will be considered based on the factors FCIC has added to the 
rule to ensure the sanction is commensurate with the violation. 
Further, FCIC will consider each person's conduct as it pertains to the 
provision of false or inaccurate information. Therefore, there should 
not be the possibility of disproportionate sanctions.
    Comment: A few commenters stated that the rule should exclude 
penalties and suspensions for conduct that is already addressed in the 
SRA.
    Response: There is nothing in the SRA or other contracts that 
specifically involves willfully and intentionally providing false or 
inaccurate information or failing to comply with a requirement of FCIC. 
Further, there may be circumstances where the improper conduct under 
the SRA is so egregious that the imposition of sanctions may be 
appropriate. The rule explains those situations. In such cases, the 
liquidated damage provisions may be inadequate given the gravity of the 
violation. Further, suspension or termination may not be viable options 
and the imposition of a civil fine may be more appropriate. However, 
with respect to any breach of the SRA, FCIC first will look to the 
remedies in the SRA. Because remedies are available under the SRA, 
sanctions can only be imposed if there are multiple violations of the 
same or different provisions.
    Comment: Several commenters state that the proposed rule's 
cumulative penalties violate the excessive fines provision of the 
Eighth Amendment of the U.S. Constitution. Since its penalties would be 
cumulative, the proposed rule could result in disproportionate fines. 
Cumulative penalties are not allowed under the Act, in addition to 
those found in 7 U.S.C. 1515(h)(3). The commenters stated that the rule 
should also be clarified to make it clear that the penalties and fines 
are not cumulative and that if the FCIC chooses to enforce any existing 
contract-based or regulatory remedies, the rule should be expressly 
inapplicable. A commenter stated that while the sanctions in 7 U.S.C. 
1515(h)(3) potentially are cumulative, there is no statutory basis for 
punishing the same conduct under other regulations or agreements. 
Accordingly, any fair reading of the FCIA precludes cumulative 
penalties in addition to those found at 7 U.S.C. 1515(h)(3). A 
commenter stated that FCIC should not treat the sanctions as cumulative 
relative to other sanctions, as this is not anywhere provided for in 
the plain language or legislative history of the statute.
    Response: Section 515(h) of the Act expressly authorizes a separate 
civil fine for each violation. Therefore, this rule does not contain 
cumulative civil fines for the same conduct. It would not make sense to 
impose the same civil fine on a person who committed one violation 
compared to one who committed two or more violations. When determining 
the civil fine to apply for each violation, FCIC is to take into 
consideration the gravity of that violation. Therefore, this allows the 
sanctions to be proportional to the conduct. However, there is nothing 
in the Act that would preclude FCIC from enforcing section 515(h) of 
the Act along with any contractual remedies. When section 515(h) of the 
Act was enacted, Congress was aware that many contracts and agreements 
had remedies for a breach. If it wanted the sanctions under section 
515(h) of the Act to be the sole remedy for the conduct it could have 
so required, but it did not do so. The application of any other remedy 
will be taken into consideration when assessing the sanction to be 
imposed under this rule so that the result is not disproportionate. 
Further, this is most likely to arise with respect to the willful and 
intentional failure to follow a requirement of FCIC, because there is 
no mention of willfully and intentionally providing false or inaccurate 
information in the contract or agreement. As stated above, there are 
situations when the conduct is so egregious, such as with multiple 
violations, that the imposition of sanctions is appropriate under this 
rule in addition to the remedies available in the contract or 
agreement. No change has been made in response to this comment.
    Comment: One commenter states that t