Surety Companies Doing Business With the United States, 14592-14600 [2011-6277]
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14592
Proposed Rules
Federal Register
Vol. 76, No. 52
Thursday, March 17, 2011
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Parts 21, 119, 121, 125, 135,
141, 142, and 145
[Docket No. FAA–2009–0671; Notice No. 09–
06A]
RIN 2120–AJ15
Safety Management System;
Withdrawal
Federal Aviation
Administration (FAA), DOT
ACTION: Advance notice of proposed
rulemaking (ANPRM); withdrawal.
AGENCY:
The FAA is withdrawing a
previously published advance notice of
proposed rulemaking (ANPRM) that
solicited public comment on a potential
rulemaking requiring certain 14 Code of
Federal Regulations (CFR) part 21, 119,
121, 125 135, 141, 142, and 145
certificate holders, product
manufacturers, applicants, and
employers (‘‘product/service providers’’)
to develop a Safety Management System
(SMS). The FAA is withdrawing the
ANPRM because we have issued a
notice of proposed rulemaking that
would require certificate holders
operating under 14 CFR part 121 to
develop and implement an SMS. The
FAA may initiate additional rulemaking
in the future to consider SMS for other
product/service providers.
DATES: The advance notice of proposed
rulemaking (ANPRM) published on July
23, 2009 (74 FR 36414) is withdrawn as
of March 17, 2011.
FOR FURTHER INFORMATION CONTACT: For
technical questions concerning this
action, contact Scott Van Buren, Chief
System Engineer for Aviation Safety,
Office of Accident Investigation and
Prevention (AVP), Federal Aviation
Administration, 800 Independence
Avenue, SW., Washington, DC 20591;
telephone (202) 494–8417; facsimile:
(202) 267–3992; e-mail:
scott.vanburen@faa.gov.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
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Background
On July 23, 2009, the FAA published
an advance notice of proposed
rulemaking (ANPRM) (Notice No. 09–
06, 74 FR 36414). The ANPRM solicited
public comment on the appropriate
scope and applicability of a potential
rulemaking that would require air
carriers, aircraft design and
manufacturing organizations, and
maintenance repair stations to develop
an SMS that would provide the
organization’s management with a set of
robust decision-making tools to use to
improve safety. The FAA received 89
comments in response to the ANPRM.
The comment period closed on October
21, 2009.
The Airline Safety and Federal
Aviation Extension Act of 2010 (Pub. L.
111–216) directed the FAA to issue an
NPRM within 90 days of enactment of
the Act, and a final rule by July 30,
2012. The Act requires the FAA to
develop and implement an SMS for all
part 121 air carriers. The NPRM was
published on November 5, 2010 (75 FR
68224).
The FAA also chartered the Safety
Management System Aviation
Rulemaking Committee (ARC) (Order
No. 1110.152; February 12, 2009) to
solicit recommendations from industry
experts on the issue of SMS, including
the ANPRM. On March 31, 2010, the
ARC submitted its report to the FAA.
As a result of the legislative mandate
to issue a final rule implementing Safety
Management Systems for part 121 air
carriers by July 2012, the FAA has
decided not to immediately address
SMS for other product/service
providers. The SMS ARC will complete
its task with submittal of comments on
the part 121 SMS rulemaking by the
close of comment date, March 7, 2011.
Further tasks of this ARC are not
anticipated. However, the FAA
reiterates its commitment to SMS and
may decide to establish other advisory
committees or industry panels in the
future to provide recommendations that
may lead to SMS rulemaking for other
product/service providers.
A copy of the Committee report, the
NPRM and comments received thus far
can be found in the docket for this
rulemaking.
Reason for Withdrawal
The FAA is withdrawing Notice No.
09–06 to redirect its resources to
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complete the SMS for part 121 final rule
by the 24 month deadline of July 30,
2012. Although the NPRM is limited to
part 121 operators, the general
requirements in our proposed part 5
were designed so in the future, they
could be adapted and applied to other
FAA-regulated entities, such as part 135
operators, part 145 repair stations, and
part 21 aircraft design and
manufacturing organizations. The FAA
is committed to developing SMS where
it will improve safety of aviation and
aviation related activities.
Conclusion
Withdrawal of Notice No. 09–06 does
not preclude the FAA from issuing
another proposal on this subject in the
future nor does it commit the agency to
any future course of action. The public
will be provided the opportunity for
public comment on any future
rulemaking through the notice and
comment process. Therefore, the FAA
withdraws Notice No. 09–06, published
at 74 FR 36414 on July 23, 2009.
Issued in Washington, DC, on March 11,
2011.
Margaret Gilligan,
Associate Administrator for Aviation Safety.
[FR Doc. 2011–6255 Filed 3–16–11; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 223
RIN 1510–AB27
Surety Companies Doing Business
With the United States
Financial Management Service,
Fiscal Service, Treasury.
ACTION: Notice of proposed rulemaking
with request for comment.
AGENCY:
The Department of the
Treasury, Financial Management
Service (Treasury), administers the
Federal corporate surety program.
Treasury issues certificates of authority
to qualified sureties to underwrite and
reinsure Federal bond obligations. We
are proposing to amend our regulation
to clarify the circumstances when an
agency bond-approving official can
decline to accept a bond underwritten
by a Treasury-certified surety. We are
SUMMARY:
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Federal Register / Vol. 76, No. 52 / Thursday, March 17, 2011 / Proposed Rules
also proposing to amend the procedures
to be used by Treasury in adjudicating
any complaint received from an agency
requesting that a surety’s certificate be
revoked for failure to satisfy an
administratively final bond obligation
due the agency.
DATES: Comments on the proposed rule
must be received by May 16, 2011.
ADDRESSES: The Financial Management
Service participates in the U.S.
government’s eRulemaking Initiative by
publishing rulemaking information on
https://www.regulations.gov.
Regulations.gov offers the public the
ability to comment on, search, and view
publicly available rulemaking materials,
including comments received on rules.
Comments on this rule, identified by
docket FISCAL–FMS–2010–0001,
should only be submitted using the
following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions on the Web site for
submitting comments.
• Mail: Rose Miller, Manager, Surety
Bond Branch, Financial Management
Service, 3700 East-West Highway, Room
6F01, Hyattsville, MD 20782.
The fax and e-mail methods of
submitting comments on rules to FMS
have been retired.
Instructions: All submissions received
must include the agency name
(‘‘Financial Management Service’’) and
docket number FISCAL–FMS–2010–
0001 for this rulemaking. In general,
comments will be published on
Regulations.gov without change,
including any business or personal
information provided. Comments
received, including attachments and
other supporting materials, are part of
the public record and subject to public
disclosure. Do not enclose any
information in your comment or
supporting materials that you consider
confidential or inappropriate for public
disclosure.
FOR FURTHER INFORMATION CONTACT: Rose
Miller, Manager, Surety Bond Branch,
Financial Management Service, at (202)
874–6850 or rose.miller@fms.treas.gov,
or James J. Regan, Senior Counsel,
Financial Management Service, at (202)
874–6680 or james.regan@fms.treas.gov.
SUPPLEMENTARY INFORMATION:
I. Background
Treasury is responsible for
administering the corporate Federal
surety bond program under the
authority of 31 U.S.C. 9304–9308 and 31
CFR part 223 (part 223). Congress
delegated to Treasury the discretion to
issue a certificate if Treasury decides
the surety’s articles of incorporation
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authorize it to engage in the business of
surety, the corporation has the requisite
paid-up capital, cash, or equivalent
assets, and the corporation is able to
carry out its contracts. Treasury
evaluates the qualifications of sureties
to write Federal bonds and issues
certificates of authority to those sureties
that meet the specified corporate and
financial standards. Treasury publishes
the list of certified sureties in
Department Circular 570 which is
available online at https://
www.fms.treas.gov/c570. Federal bondapproving officials consult and rely on
this list whenever a corporate surety
bond is presented to an agency because
bonds underwritten by Treasurycertified sureties satisfy bonding
requirements, provided such bonds are
accepted by agency bond-approving
officials.
Treasury finds it necessary to clarify
the circumstances under which a
Federal agency bond-approving official
can decline to accept a bond
underwritten by a Treasury-certified
surety. Federal agencies have sometimes
continued to accept bonds from a
certified surety, even when the surety
owes the agency an administratively
final bond obligation, believing that
Treasury certification mandates such
acceptance in all cases. This is not the
case.
The proposed rule would clarify that
Treasury certification does not insulate
a surety from the requirement to satisfy
administratively final bond obligations
in order to ensure that its bonds will be
accepted by agencies in all cases.
Specifically, under the proposed rule,
an agency bond-approving official
would have the discretion to decline to
accept bonds underwritten by a
Treasury-certified surety for cause, such
as when the surety owes the agency an
unpaid or unsatisfied bond obligation
that is administratively final under
agency procedures. This discretion is
not without limit. Before declining to
accept bonds from a Treasury-certified
surety, an agency must provide the
surety advance written notice stating: (i)
The intention of the agency to decline
bonds underwritten by the surety, (ii)
the reasons for or cause of the proposed
non-acceptance of such bonds, (iii) the
opportunity for the surety to rebut the
stated reasons or cause, and (iv) the
surety’s opportunity to cure the stated
reasons or cause. Under the proposed
rule, the agency may decline the bonds
underwritten by the certified surety if,
after consideration of any submission by
the surety, the agency issues a written
determination that the bonds should be
declined. The agency is required to
articulate standards for exercising its
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discretion to decline bonds from
Treasury-certified sureties in an agency
rule or regulation prior to declining any
bonds in specific cases.
The proposed rule is consistent with
the general and permanent surety laws
that were enacted by Congress and later
codified, without substantive change, as
31 U.S.C. 9304(b). The surety statutory
framework is derived from public laws
enacted in 1894 and 1910. The Act of
August 13, 1894, 28 Stat. 279, as
amended by The Act of March 23, 1910,
36 Stat. 241, provided that a bond
underwritten by a Treasury-certified
surety satisfied bonding requirements
‘‘Provided, That such recognizance,
stipulation, bond, or undertaking be
approved by the head of department,
court, judge, officer, board, or body
executive, legislative, or judicial
required to approve or accept the same.’’
This proviso conditioned acceptance of
a bond on the approval by an agency.
This language was first codified in 1925
as 6 U.S.C. 6, and codified again in 1982
as 31 U.S.C. 9304(b), without
substantive change. See, e.g., The Code
of the Laws of the United States of
America, December 7, 1925, Preface
Statement (The codification is the
official restatement of the general and
permanent laws of the United States,
and under the codification ‘‘No new law
is enacted and no law repealed’’); Public
Law 97–258 (1982), 96 Stat. 877, 1047
(Codification enacted ‘‘without
substantive change’’).
Federal courts have affirmed that
Section 9304(b), and its predecessor
derivations, afford agency bondapproving officials discretion to decline
the acceptance of a bond underwritten
by a Treasury-certified surety,
consistent with the due process
standards articulated in the proposed
rule. See Concord Casualty & Surety Co.
v. United States, 69 F.2d 78, 81 (2d Cir.
1934)(The bond-approval official’s
approval of a bond underwritten by a
Treasury-certified surety ‘‘is not
mandatory’’ but calls for the exercise of
wise discretion); American Druggists
Ins. Co. v. Bogart, 707 F.2d 1229, 1233
(11th Cir. 1983)(‘‘The surety’s approval
by the Secretary of the Treasury * * *
does not preclude the district court from
exercising its discretion to approve only
those [bail] bonds which it feels
confident will result in the defendant’s
presence at trial’’ and ‘‘Section 9304(b)
impliedly authorizes this discretion in
its provision that ‘each surety bond
shall be approved by the official of the
Government required to approve or
accept the bond.’ ’’).
The proposed text is also consistent
with 31 U.S.C. 9305(d)(3) which
authorizes Treasury to require
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additional security in circumstances
when the surety is no longer sufficient.
Specifically, Treasury believes the
discretion afforded to agency bondapproving officials under the proposed
text is appropriate because a surety that
has not paid an administratively final
bond obligation to an agency, even after
due process has been afforded, is no
longer providing sufficient security vis`
a-vis the agency.
The proposed rule is necessary to
better facilitate the prompt resolution of
bond disputes between Federal agencies
and sureties. Under the current rule, the
status of Treasury certification has had
the unintended consequence of
inhibiting the proper adherence to
agency administrative processes in bond
dispute matters. In practice, this has
negatively impacted the ability to
resolve administratively final bond
obligation disputes at the agency level.
In a limited number of cases, sureties
appear to have simply ignored agency
final decisions for extended periods of
time. While these cases are anomalous
and rare, they represent an unwelcome
burden on the Treasury and the public
fisc because the administratively final
bond obligations at issue were not paid,
or resolved, promptly.
Thus, the proposed rule would clarify
that agencies have two options when
experiencing surety performance and
collection problems. First, an agency
owed an administratively final bond
obligation by a certified surety has the
discretion to decline acceptance of
additional bonds underwritten by such
surety, provided the due process
standards articulated in the rule are
satisfied. Second, an agency owed an
administratively final bond obligation
by a certified surety can submit a
complaint to Treasury requesting that
the surety’s certificate be revoked.
With regard to this second option, the
proposed rule would clarify the
procedures and standard of review that
will be used by Treasury to adjudicate
any complaint submitted by an agency
to Treasury requesting that a surety’s
certificate be revoked for failure to
satisfy an administratively final bond
obligation. Under the proposed rule,
Treasury will not conduct a de novo
review of the administratively final
agency determination that a bond
obligation is past due because
substantive agency bond obligation
determinations are based, in large part,
on the interpretation and application of
laws that the agency, rather than
Treasury, has been tasked by Congress
with administering. Treasury will not
substitute its judgment for that of the
agency in determining whether a bond
obligation is owed under agency
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authorities. Rather, in considering
whether the surety’s certificate should
be revoked, Treasury will review
whether the agency’s administratively
final decision (that the surety owes a
past-due bond obligation) was
reasonable, based on a consideration of
relevant factors, and did not involve a
clear error of judgment.
To the extent that a surety requests
Treasury to conduct an informal hearing
before reaching its decision on whether
the surety’s certificate should be
revoked, the proposed rule clarifies that
the formal adjudication standards under
the Administrative Procedures Act, 5
U.S.C. 554, 556, and 557, do not apply
to the conduct of such an informal
hearing. This is appropriate because
Treasury’s surety statutes, 31 U.S.C.
9304–9308, do not require a formal
adjudication to be determined on the
record after an opportunity for a
hearing. See, e.g., 5 U.S.C. 554(a)(formal
adjudication procedures only apply in
cases ‘‘required by statute to be
determined on the record after an
opportunity for an agency hearing’’).
Moreover, a surety’s property interest in
its certificate is narrow. American
Druggists Ins. Co. v. Bogart, 707 F.2d
1229, 1235 (11th Cir. 1983)(‘‘The scope
of the surety’s protected interest arising
from the federal regulatory scheme is
indeed narrow.’’). Given this narrow
interest, the opportunity for a surety to
request an informal hearing under the
standards articulated in the proposed
rule is consistent with due process
requirements that the surety be given an
opportunity to be heard ‘‘at a meaningful
time and in a meaningful manner.’’ See,
e.g., Matthews v. Eldridge, 424 U.S. 319,
333 (1976)(Fundamental due process
satisfied if the individual is given an
opportunity to be heard ‘‘at a meaningful
time and in a meaningful manner’’).
In addition, Treasury is proposing to
make certain technical amendments to
part 223 to update statutory citations
and to provide current Treasury point of
contact information.
II. Section-by-Section Analysis
Section 223.1
We are proposing to amend § 223.1 by
stating, in plain language, that part 223
governs the issuance and revocation of
certificates of authority of surety
companies to do business with the
United States as sureties on, or
reinsurers of, Federal surety bond
obligations, and the acceptance of such
obligations. The proposed rule deletes
archaic language and clarifies that the
U.S. Department of the Treasury,
Financial Management Service
(Treasury), acts on behalf of the
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Secretary of the Treasury in performing
these duties.
Section 223.2
We are proposing to amend § 223.2 to
clarify that applications for certificates
of authority should be submitted to
Treasury at the location, and in the
manner, specified online at https://
www.fms.treas.gov/c570, as amended
from time to time.
Section 223.3
Section 223.3(a) establishes the
requirements that must be met by an
applicant company in order to be issued
a certificate of authority by Treasury.
Proposed § 223.3(a) restates such
requirements in plain language. In
addition, the proposed regulation
clarifies that any certificate issued by
Treasury is expressly subject to the
continuing compliance by the surety
with all statutory requirements and the
other conditions referenced in this part.
Section 223.4
Section 223.4 provides that no
company will be issued a certificate of
authority by Treasury unless it
maintains on deposit with the insurance
commissioner of the State in which it is
incorporated, or other specified State
official, legal investments having a
current market value of not less than
$100,000, for the protection of
claimants, including the surety’s
policyholders in the United States.
Proposed § 223.4 would add a sentence
requiring a company to submit to
Treasury with its initial application for
a certificate of authority, and annually
thereafter, a written statement signed by
the State official attesting to the current
market value of the deposit (not less
than $100,000) and that the legal
investments remain on deposit with the
State.
Section 223.8
Section 223.8 requires Treasurycertified sureties to file annual and
quarterly financial reports to Treasury
for review. Proposed § 223.8(a) updates
the specified Treasury official to whom
these reports should be submitted.
Section 223.9
Section 223.9 establishes the criteria
by which Treasury values the assets and
liabilities of a company for certificate of
authority purposes. Section 223.9
provides that Treasury will allow credit
for reinsurance in all classes of risk if
the reinsuring company holds a
certificate of authority from Treasury, or
has been recognized as an admitted
reinsurer by Treasury. Proposed § 223.9
clarifies that this credit for reinsurance
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will be allowed only if the reinsurer is
in continuing compliance with all
certificate of authority requirements.
Section 223.11
Section 223.11(b) provides that a
surety can underwrite a Federal bond in
excess of its underwriting limitation if
the excess amount is reinsured by a
company holding a certificate of
authority issued by Treasury, provided
the specified reinsurance requirements
are met. Proposed § 223.11(b) clarifies
that the requisite reinsurance bond
forms are available on the General
Services Administration Web site at
https://www.gsa.gov.
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Section 223.12
Section 223.12 establishes the
application requirements and standards
for a company to be recognized by
Treasury as an admitted reinsurer
(except on excess risks running to the
United States) for surety companies
doing business with the United States.
When a Treasury-certified surety cedes
non-Federal risks to an admitted
reinsurer, Treasury will credit the surety
for the ceded reinsurance when valuing
its assets and liabilities, provided
applicable requirements are met.
Proposed § 223.12 updates the specified
Treasury official to whom applications
and reports pertaining to admitted
reinsurer status should be submitted.
Section 223.16
Proposed § 223.16, List of certificate
holding companies, adds a new fourth
sentence to this subpart providing:
‘‘Bonds underwritten by certified
companies on the Department Circular
No. 570 list may be presented to an
agency bond-approving official for
acceptance.’’ Proposed § 223.16 adds a
final sentence to this subpart providing:
‘‘Selection of a particular qualified
company from among all companies
holding certificates of authority is
discretionary with the principal
required to furnish the bond, but the
acceptance of a bond by an agency
bond-approving official is subject to
§ 223.17.’’
This proposed text clarifies that
Treasury-certified sureties have the
opportunity to present their bonds to an
agency bond-approving official for
acceptance, but that the actual
acceptance of a bond by an agency
bond-approving official is subject to
proposed § 223.17.
Section 223.17
Proposed § 223.17, Acceptance and
non-acceptance of bonds, clarifies that
every surety holding a Treasury-issued
certificate of authority has the
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opportunity to present its bonds to an
agency bond-approving official for
acceptance, and that such bondapproving official may accept such
proffered bonds in all cases. It also
clarifies, however, that an agency bondapproving official has the discretion to
decline bonds underwritten by a
Treasury-certified surety for cause,
provided the specified due process
protections are satisfied. The agency is
required to articulate standards for
exercising its discretion not to accept
bonds from Treasury-certified sureties
in an agency rule or regulation prior to
declining any bonds in specific cases.
Existing agency rules or regulations that
substantially comply with, or that are
consistent with, the requirement to
articulate standards in advance meet the
requirements of this paragraph.
Under proposed § 223.17, for cause is
primarily defined to mean that a surety
has not paid or satisfied an
administratively final bond obligation
due the agency. The articulation of this
primary definition is not intended to
preclude an agency from articulating
additional ‘‘for cause’’ reasons, provided
such reasons are defined in an agency
rule or regulation in advance, and such
additional reasons are otherwise
consistent with an agency’s own
authorities. See, e.g., 27 CFR 25.101
(Existing Treasury Tax and Trade
Bureau (TTTB) regulation authorizing
rejection of a bond for substantive
reason consistent with that agency’s
mission; under § 25.101, TTTB can
disapprove a bond if the surety has been
convicted of any fraudulent
noncompliance with any provision of
law of the United States related to
internal revenue or customs taxation of
distilled spirits, wines, or beer).
The authority of an agency to decline
the acceptance of bonds ‘‘for cause’’
under this proposed paragraph would
not apply when the for cause basis, e.g.,
the obligation of the surety to satisfy
administratively final bond obligations
owed the agency, has been stayed or
enjoined by a court of competent
jurisdiction.
Section 223.18
Proposed § 223.18, Revocation,
clarifies that revocation of a surety’s
certificate of authority by Treasury can
occur in two ways. First, Treasury can
initiate a revocation proceeding on its
own initiative under proposed § 223.19,
Treasury initiated revocation
proceedings, when it has reason to
believe that a surety is not complying
with 31 U.S.C. 9304–9308 and/or the
regulations under part 223. Second,
Treasury can initiate a revocation
proceeding under proposed § 223.20,
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Revocation proceedings initiated by
Treasury upon receipt of an agency
complaint, upon receipt of a complaint
from an agency that a surety has not
satisfied an administratively final bond
obligation.
Section 223.19
Proposed § 223.19, Treasury initiated
revocation proceedings, outlines the
process by which Treasury initiates
proceedings on its own accord to revoke
a surety’s certificate of authority for
failure to meet the requirements of 31
U.S.C. 9304–9308 and/or part 223.
These proceedings can be initiated due
to a failure to meet financial strength
requirements or any other requirement.
Section 223.20
Proposed § 223.20, Revocation
proceedings initiated by Treasury upon
receipt of an agency complaint, specifies
the process for an agency to submit a
complaint to Treasury requesting that a
certified surety’s certificate of authority
be revoked for failure to satisfy an
administratively final bond obligation.
Proposed § 223.20 affords the surety the
opportunity to demonstrate its
qualifications to retain its certificate,
establishes the roles of the Treasury
Reviewing Official and the Treasury
Deciding Official in the adjudicative
process, and establishes the standard of
review to be used by the Reviewing and
Deciding Officials in reaching a
decision.
The Treasury Reviewing and Deciding
Officials will not conduct a de novo
review of the agency’s administratively
final determination that a bond
obligation is past due because
substantive agency bond obligation
determinations are based, in large part,
on the interpretation and application of
laws that the complaining agency, rather
than Treasury, has been tasked by
Congress with administering. The
Treasury Reviewing and Deciding
Officials will not substitute their
judgment for that of the agency. Rather,
in reviewing whether revocation is
justified, Treasury will consider
whether the agency’s final decision (that
the surety owes a past-due bond
obligation) was reasonable, based on a
consideration of relevant factors, and
did not involve a clear error of
judgment.
As a general rule, proposed § 223.20
anticipates that Treasury will adjudicate
agency complaints without an informal
oral hearing. Proposed § 223.20(c)
ensures that the surety is afforded a fair
opportunity to demonstrate, in writing,
its qualifications to retain its certificate
before a decision is reached.
Nevertheless, in the event a surety
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believes the opportunity to make known
its views is inadequate, it may request
that Treasury convene an informal
hearing before reaching a decision
under the timeframes established in the
proposed rule. Proposed § 223.20(h)
specifies the procedures under which
such an informal hearing would be
conducted.
In the event that the Treasury
Deciding Official sustains the agency’s
complaint and makes a decision that the
surety’s certificate should be revoked,
proposed § 223.20 clarifies that a surety
will be afforded an opportunity to cure
the noncompliance to avoid
decertification, unless its
noncompliance is ‘‘willful.’’ Proposed
§ 223.20(g) articulates the scope and
application of the willful exception to
the cure opportunity.
Section 223.21
Proposed § 223.21, Reinstatement,
provides that a surety whose certificate
of authority has been revoked, or not
renewed, by Treasury can apply for
reissuance of a certificate of authority
after one year. Among other things, such
a surety must demonstrate as a
condition of reinstatement that the basis
for the non-renewal or revocation of its
certificate has been eliminated. Under
proposed § 223.21 the determination of
whether the basis for the non-renewal or
revocation has been eliminated or
effectively cured will be made by
Treasury in its discretion.
DERIVATION CHART FOR REVISED
PART 223
Old section
New section
—
223.17
—
223.18
223.19
223.20
223.21
223.22
223.17
223.18
223.19
223.20
223.20
223.20
223.21
223.22
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Request for Comment on Plain Language
Executive Order 12866 requires each
agency in the Executive branch to write
regulations that are simple and easy to
understand. We invite comment on how
to make the proposed rule clearer. For
example, you may wish to discuss: (1)
Whether we have organized the material
to suit your needs; (2) whether the
requirements of the rules are clear; or (3)
whether there is something else we
could do to make these rules easier to
understand.
14:47 Mar 16, 2011
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The proposed rule does not meet the
criteria for a ‘‘significant regulatory
action’’ as defined in Executive Order
12866. Therefore, the regulatory review
procedures contained therein do not
apply.
Regulatory Flexibility Act Analysis
It is hereby certified that the proposed
rule will not have a significant
economic impact on a substantial
number of small entities. Treasurycertified sureties already have an
existing obligation to make payment on
bond obligations to ensure acceptance of
their bonds by agency bond-approving
officials under 31 U.S.C. 9304(b). The
proposed rule merely codifies this
existing obligation in the regulation and
clarifies that Federal agencies can
decline to accept bonds underwritten by
Treasury-certified sureties in limited
circumstances, primarily when the
surety owes the agency an
administratively final bond obligation.
In addition, Treasury-certified sureties
have an existing obligation to make
payment on bond obligations or be
subject to Treasury certificate revocation
proceedings. The proposed rule merely
clarifies the procedures and standard of
review that will be used by Treasury in
adjudicating revocation complaints
submitted by agencies. Payment
disputes involving Treasury-certified
sureties are anomalous and rare. The
proposed rule will not have a significant
economic impact on a substantial
number of small entities. Accordingly, a
regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.) is not required.
Unfunded Mandates Act of 1995
III. Procedural Analyses
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Regulatory Planning and Review
Section 202 of the Unfunded
Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act),
requires that the agency prepare a
budgetary impact statement before
promulgating any rule likely to result in
a Federal mandate that may result in the
expenditure by State, local, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any one year. If a budgetary impact
statement is required, section 205 of the
Unfunded Mandates Act also requires
the agency to identify and consider a
reasonable number of regulatory
alternatives before promulgating the
rule. We have determined that the
proposed rule will not result in
expenditures by State, local, and tribal
governments, or by the private sector, of
$100 million or more in any one year.
Accordingly, we have not prepared a
budgetary impact statement or
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specifically addressed any regulatory
alternatives.
List of Subjects in 31 CFR Part 223
Administrative practice and
procedure, Surety bonds.
For the reasons set out in the
preamble, we propose to amend 31 CFR
part 223 as set forth below:
PART 223—SURETY COMPANIES
DOING BUSINESS WITH THE UNITED
STATES
1. Revise the authority citation for
part 223 to read as follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 9304–
9308.
2. Revise § 223.1 to read as follows:
§ 223.1
Certificate of authority.
The regulations in this part will
govern the issuance by the Secretary of
the Treasury, acting through the U.S.
Department of the Treasury, Financial
Management Service (Treasury), of
certificates of authority to bonding
companies to do business with the
United States as sureties on, or
reinsurers of, Federal surety bonds
(hereinafter ‘‘bonds’’ or ‘‘obligations’’)
under the authority of 31 U.S.C. 9304–
9308 and this part, and the acceptance
of such obligations. The regulations in
this part also govern the revocation of
certificates.
3. Revise § 223.2 to read as follows:
§ 223.2 Application for certificate of
authority.
Every company wishing to apply for
a certificate of authority shall submit an
application to the Financial
Management Service, U.S. Department
of the Treasury, c/o Surety Bond
Branch, to the location, and in the
manner, specified online at https://
www.fms.treas./c570, as amended from
time to time. In accordance with 31
U.S.C. 9305(a), the data will include a
copy of the applicant’s charter or
articles of incorporation and a
statement, signed and sworn to by its
president and secretary, showing its
assets and liabilities. A fee shall be
transmitted with the application in
accordance with the provisions of
§ 223.22(a)(i).
4. In § 223.3, revise paragraph (a) to
read as follows:
§ 223.3 Issuance of certificates of
authority.
(a)(1) A company submitting an
application to be issued a certificate of
authority by Treasury to underwrite and
reinsure Federal surety bonds must
include all required data and
information, as determined by Treasury
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in its discretion, for the application to
be complete and ready for review. Upon
receipt of a complete application,
Treasury will evaluate the submission to
determine whether the applicant
company:
(i) Is duly authorized under its charter
or articles of incorporation to conduct
the business referenced under 31 U.S.C.
9304(a)(2);
(ii) Has paid-up capital of at least
$250,000 in cash or its equivalent;
(iii) Is solvent and financially and
otherwise qualified to conduct the
business referenced under 31 U.S.C.
9304(a)(2); and
(iv) Is able and willing to carry out its
contracts. In making the determination
whether a company meets these
requirements, Treasury will evaluate the
application as a whole, the required
financial statement(s) submitted by the
company, the company’s charter or
articles of incorporation, the past
history of the company, and any further
evidence or information that Treasury
may require the company to submit (at
the company’s expense).
(2) If Treasury determines, in its
discretion, that the applicant company
meets all of these requirements,
Treasury will issue a certificate of
authority to the company authorizing it
to underwrite and reinsure Federal
bonds. The certificate of authority will
be effective for a term that expires on
the last day of the next June. All such
statutory requirements and regulatory
requirements under this part are
continuing obligations, and any
certificate is issued expressly subject to
continuing compliance with such
requirements. The certificate of
authority will be renewed annually on
the first day of July, provided the
company remains qualified under the
law, the regulations in this part, and
other pertinent Treasury requirements,
and the company submits the fee
required under § 223.22 by March 1st of
each year to the address and/or account
specified by Treasury.
*
*
*
*
*
5. In § 223.4, add a sentence to the
end of the section to read as follows:
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§ 223.4
Deposits.
* * * The company shall submit to
Treasury with its initial application for
a certificate of authority, and annually
thereafter, a written statement signed by
such State official attesting to the
current market value of the deposit (not
less than $100,000) and that the legal
investments remain on deposit with the
State under the terms specified.
6. In § 223.8, revise paragraph (a) to
read as follows:
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§ 223.8
Financial reports.
(a) Every such company will be
required to file with the Assistant
Commissioner, Management, or
incumbent Treasury executive, on or
before the last day of January of each
year, a statement of its financial
condition made up as of the close of the
preceding calendar year upon the
annual statement blank adopted by the
National Association of Insurance
Commissioners, signed and sworn to by
its president and secretary. On or before
the last days of April, July and October
of each year, every such company shall
file a financial statement with the
Assistant Commissioner, Management,
or incumbent Treasury executive as of
the last day of the preceding month. A
form is prescribed by the Treasury for
this purpose. The quarterly statement
form of the National Association of
Insurance Commissioners when
modified to conform to the Treasury’s
requirements, may be substituted for the
Treasury’s form. The quarterly
statement will be signed and sworn to
by the company’s president and
secretary or their authorized designees.
*
*
*
*
*
7. In § 223.9, revise the last sentence
to read as follows:
§ 223.9
Valuation of assets and liabilities.
* * * Credit will be allowed for
reinsurance in all classes of risks if the
reinsuring company holds a certificate
of authority from the Secretary of the
Treasury, provided such reinsuring
company is in continuing compliance
with all certificate of authority
requirements, or has been recognized as
an admitted reinsurer in accord with
§ 223.12.
8. In § 223.11, revise paragraph (b)(1)
to read as follows:
§ 223.11 Limitation of risk: Protective
methods.
*
*
*
*
*
(b) Reinsurance. (1) In respect to
bonds running to the United States,
liability in excess of the underwriting
limitation shall be reinsured within 45
days from the date of execution and
delivery of the bond with one or more
companies holding a certificate of
authority from the Secretary of the
Treasury. Such reinsurance shall not be
in excess of the underwriting limitation
of the reinsuring company. Where
reinsurance is contemplated, Federal
agencies may accept a bond from the
direct writing company in satisfaction of
the total bond requirement even though
it may exceed the direct writing
company’s underwriting limitation.
Within the 45 day period, the direct
writing company shall furnish to the
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14597
Federal agency any necessary
reinsurance agreements. However, a
Federal agency may, at its discretion,
require that reinsurance be obtained
within a lesser period than 45 days, and
may require completely executed
reinsurance agreements to be provided
before making a final determination that
any bond is acceptable. Reinsurance
may protect bonds required to be
furnished to the United States by the
Miller Act (40 U.S.C. 3131, as amended)
covering contracts for the construction,
alteration, or repair of any public
building or public work of the United
States, as well as other types of Federal
bonds. Use of reinsurance or
coinsurance to protect such bonds is at
the discretion of the direct writing
company. Reinsurance shall be executed
on reinsurance agreement forms:
Standard Form 273 (Reinsurance
Agreement for a Miller Act Performance
Bond), Standard Form 274 (Reinsurance
Agreement for a Miller Act Payment
Bond), and Standard Form 275
(Reinsurance Agreement in Favor of the
United States for other types of Federal
bonds). These Standard Forms are
available on the General Services
Administration Web site at https://
www.gsa.gov.
*
*
*
*
*
9. In § 223.12, revise paragraph (a)
introductory text, paragraph (a)(5),
paragraph (b) introductory text, and
paragraph (c) to read as follows:
§ 223.12
Recognition as reinsurer.
(a) Application by U.S. company. Any
company organized under the laws of
the United States or of any State thereof,
wishing to apply for recognition as an
admitted reinsurer (except on excess
risks running to the United States) of
surety companies doing business with
the United States, shall file the
following data with the Assistant
Commissioner, Management, or
incumbent Treasury executive, and
shall transmit therewith the fee in
accordance with the provisions of
§ 223.22:
*
*
*
*
*
(5) Such other evidence as Treasury
may determine is necessary to establish
that it is solvent and able to meet the
continuing obligation to carry out its
contracts.
(b) Application by a U.S. branch. A
U.S. branch of an alien company
applying for such recognition shall file
the following data with the Assistant
Commissioner, Management, or
incumbent Treasury executive, and
shall transmit therewith the fee in
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accordance with the provisions of
§ 223.22:
*
*
*
*
*
(c) Financial reports. Each company
recognized as an admitted reinsurer
shall file with the Assistant
Commissioner, Management, or
incumbent Treasury executive, on or
before the first day of March of each
year its financial statement and such
additional evidence as the Secretary of
the Treasury determines necessary to
establish that the requirements of this
section are being met. A fee shall be
transmitted with the foregoing data, in
accordance with the provisions of
§ 223.22.
10. Revise § 223.16 to read as follows:
§ 223.16 List of certificate holding
companies.
A list of qualified companies is
published annually as of July 1 in
Department Circular No. 570,
Companies Holding Certificates of
Authority as Acceptable Sureties on
Federal Bonds and as Acceptable
Reinsuring Companies, with
information as to underwriting
limitations, areas in which listed
sureties are licensed to transact surety
business and other details. If the
Secretary of the Treasury shall take any
exceptions to the annual financial
statement submitted by a company, he
or she shall, before issuing Department
Circular 570, give a company due notice
of such exceptions. Copies of the
Circular are available at https://
www.fms.treas.gov/c570, or from the
Assistant Commissioner, Management,
or incumbent Treasury executive, upon
request. Bonds underwritten by certified
companies on the Department Circular
No. 570 list may be presented to an
agency bond-approving official for
acceptance. Selection of a particular
qualified company from among all
companies holding certificates of
authority is discretionary with the
principal required to furnish the bond,
but the acceptance of a bond by an
agency bond-approving official is
subject to § 223.17.
11. Revise § 223.17 to read as follows:
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§ 223.17 Acceptance and non-acceptance
of bonds.
(a) Acceptance of bonds. A bond
underwritten by a certified company on
the § 223.16 Department Circular No.
570 list may be presented to an agencybond approving official for acceptance,
and such agency bond-approving
official may accept such bonds.
(b) Non-acceptance of bonds. (1) An
agency bond-approving official has the
discretion not to accept bond(s)
underwritten by a certified company on
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14:47 Mar 16, 2011
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the § 223.16 List of certificate holding
companies, Department Circular No.
570, for cause, but only if the certified
surety has been given advance written
notice by such agency. The advance
written notice shall state:
(i) The intention of the agency to
decline bond(s) underwritten by the
surety;
(ii) The reasons for or cause of the
proposed non-acceptance of such
bond(s);
(iii) The opportunity for the surety to
rebut the stated reasons or cause; and
(iv) The surety’s opportunity to cure
the stated reasons or cause.
(2) The agency may decline to accept
bond(s) underwritten by the surety if,
after consideration of any submission by
the surety or failure of the surety to
respond to the agency notice, the agency
issues a written determination that the
bond(s) should not be accepted,
consistent with agency standards. The
agency shall articulate its standards for
exercising its discretion not to accept
bonds under this paragraph in an
agency rule or regulation prior to
declining any bonds in specific cases.
‘‘For cause’’ is primarily defined to mean
that a surety has not paid or satisfied an
administratively final bond obligation
due the agency. The articulation of this
primary definition is not intended to
preclude an agency from articulating
additional ‘‘for cause’’ reasons,
providing such reasons are defined in
an agency rule or regulation in advance,
and such additional reasons are
otherwise consistent with an agency’s
own authorities. Existing agency rules
or regulations that substantially comply
with, or that are consistent with, the
requirement to articulate standards in
advance meet the requirements of this
paragraph.
(3) Agencies that decline bonds under
this paragraph are encouraged to use
best efforts to ensure that persons
conducting business with the agency are
aware that bonds underwritten by the
particular certified surety will not be
accepted.
(4) The authority to decline bonds
under this paragraph does not apply
when the ‘‘for cause’’ basis, e.g., the
obligation of the surety to satisfy
administratively final bond obligations,
has been stayed or enjoined by a court
of competent jurisdiction.
§§ 223.18 through 223.20
[Removed]
12. Remove §§ 223.18, 223.19, and
223.20.
§ 223.17
[Redesignated as § 223.18]
13. Redesignate § 223.17 as § 223.18.
14. Revise newly redesignated
§ 223.18 to read as follows:
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§ 223.18
Revocation.
(a) A certified surety’s certificate of
authority granting the surety the
opportunity to present its bonds for
approval to an agency bond-approving
official, i.e., the surety’s listing on
Department Circular 570, can be
revoked by Treasury in two ways:
(1) Treasury, of its own accord, under
§ 223.19, may initiate revocation
proceedings against the surety when it
has reason to believe that a company is
not complying with 31 U.S.C. 9304–
9308 and/or the regulations under this
part, or
(2) Treasury, under § 223.20, may
initiate revocation proceedings against
the surety upon receipt of a complaint
from an agency that the surety has not
paid or satisfied an administratively
final bond obligation due the agency.
(b) A revocation of a surety’s
certificate of authority under § 223.19 or
§ 223.20 precludes the surety from
underwriting or reinsuring additional
bonds for any agency, and therefore
revokes the surety’s opportunity to have
its bonds presented to any agency bondapproving official for acceptance.
15. Add new § 223.19 to read as
follows:
§ 223.19 Treasury initiated revocation
proceedings.
Whenever Treasury has reason to
believe that a surety is not complying
with the requirements of 31 U.S.C.
9304–9308 and/or the regulations in this
part, including but not limited to a
failure to satisfy corporate and financial
standards, Treasury shall:
(a) Notify the company of the facts or
conduct which indicate such failure,
and provide opportunity to the
company to respond, and
(b) Revoke a company’s certificate of
authority with advice to it if:
(1) The company does not respond
satisfactorily to its notification of
noncompliance, or
(2) The company, provided an
opportunity to demonstrate or achieve
compliance, fails to do so.
16. Add new § 223.20 to read as
follows:
§ 223.20 Revocation proceedings initiated
by Treasury upon receipt of an agency
complaint.
(a) Agency Complaint. If an agency
determines that a surety has not
promptly made full payment or fully
satisfied an administratively final bond
obligation naming the agency as obligee,
the head of the agency, or his or her
designee, may submit a complaint to the
Assistant Commissioner, Management,
or incumbent Treasury executive,
requesting that the surety’s certificate of
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authority be revoked for
nonperformance of administratively
final bond obligations. Under such
complaint, the agency shall certify that:
(1) The agency has made a
determination, in accordance with
applicable agency procedures and
standards, that a surety owes on a bond
obligation naming the agency as obligee;
(2) The agency has submitted a
written demand on behalf of the agency
to the surety requesting payment or
satisfaction on the bond obligation;
(3) The surety was afforded the
opportunity to request administrative
review within the agency of the
determination that the bond obligation
was due, and the agency made a final
administrative determination that the
bond obligation was due after the
completion of such administrative
review, or the time period for the surety
to request administrative review within
the agency has expired, i.e., the bond
obligation is administratively final;
(4) The agency provided the surety
the opportunity to enter into a written
agreement to satisfy the obligation;
(5) The surety has not made full
payment or fully satisfied the obligation,
and the obligation is past due; and
(6) The surety’s obligation to make
payment or satisfy the obligation has not
been stayed or enjoined by a court of
competent jurisdiction conducting
judicial review of such obligation.
(b) Documentation of Complaint. The
agency shall include in its complaint a
copy of the bond, written notice of the
bond claim, pertinent administrative
agency decisions supporting the final
agency determination that a bond
obligation is due, a copy of a written
demand letter supporting the
determination that payment of the bond
obligation is past due, and
documentation indicating the surety
was afforded the opportunity to enter
into a written agreement to satisfy the
bond obligation.
(c) Notice to Surety. On receipt of a
complaint meeting the requirements of
paragraphs (a) and (b) of this section,
Treasury will notify the surety that its
certificate of authority to write
additional bonds for any agency will be
revoked in the absence of a satisfactory
explanation. The notice will require the
surety to submit a written explanatory
response to Treasury within 20 business
days. The notice will advise the surety
of the facts and conduct referenced in
the complaint. The notice will afford the
company the opportunity to
demonstrate its qualifications to retain
its certificate of authority.
(d) Reviewing Official and Deciding
Official. The Assistant Commissioner,
Management, or incumbent Treasury
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executive, will appoint a Reviewing
Official to conduct a paper review of the
Federal agency complaint referenced in
paragraphs (a) and (b) of this section,
and the surety response referenced in
paragraph (c) of this section, to
determine whether revocation of the
surety’s certificate of authority is
warranted. The Reviewing Official is
authorized to require the submission of
additional documentation from the
complaining agency and the surety, to
ensure appropriate consideration of
relevant factual or legal issues. Upon
completion of such review, the
Reviewing Official shall prepare a
written Recommendation Memorandum
addressed to the Assistant
Commissioner, Management, or
incumbent Treasury executive, setting
forth findings and a recommended
disposition. The Assistant
Commissioner, Management, or
incumbent Treasury executive with
executive oversight of the Treasury
surety program, will be the Deciding
Official who will make the final
decision whether the surety’s certificate
of authority to write and reinsure bonds
should be revoked based on the
administrative record. For these
purposes, the administrative record
consists of the agency complaint
referenced in paragraphs (a) and (b) of
this section, the surety response
referenced in paragraph (c) of this
section, any other documentation
submitted to, or considered by, the
Reviewing Official, and the Reviewing
Official’s Recommendation
Memorandum.
(e) Final Decision. (1) If the Deciding
Official’s final decision is that
revocation is not warranted, the surety
and the agency will be notified of the
basis of this decision and the complaint
against the surety will be dismissed.
(2) If the Deciding Official’s final
decision is that the surety’s certificate of
authority shall be revoked, the Deciding
Official will notify the surety and the
agency of the revocation decision and
the basis for such decision. Except as
provided in paragraph (g) of this
section, the notice will afford the surety
an opportunity to demonstrate or
achieve compliance, i.e., cure its
noncompliance, by satisfying the bond
obligations forming the basis of the final
decision within 20 business days. If the
surety cures its noncompliance within
20 business days, the complaint against
the surety will be deemed moot and the
surety will retain its certificate of
authority to write Federal bonds. If the
surety does not cure its noncompliance
within 20 business days, the surety’s
certificate of authority shall be revoked
by Treasury without further notice.
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(f) Standard of Review. (1) In
reviewing whether the revocation of the
surety’s certificate of authority is
warranted under this section, the
Reviewing Official and the Deciding
Official will determine whether the
agency’s administratively final decision
that the surety owes a past-due bond
obligation:
(i) Was reasonable;
(ii) Was based on a consideration of
relevant factors; and
(iii) Did not involve a clear error of
judgment.
(2) The Reviewing Official and the
Deciding Official will not conduct a de
novo review of the agency
determination, and will not substitute
their judgment for that of the agency.
(g) Consideration of Willful Conduct.
The surety is not entitled to an
opportunity to demonstrate or achieve
compliance, i.e., cure its
noncompliance, if its conduct in failing
to carry out its contracts is willful. For
purposes of this regulation, ‘‘willful’’
means a careless or reckless disregard of
a known legal obligation to satisfy a past
due bond obligation. In considering
whether a surety’s conduct is willful,
the Deciding Official may consider
whether:
(1) An agency has filed a prior
complaint with Treasury requesting that
the surety’s certificate be revoked for a
substantially similar past-due bond
obligation;
(2) The surety asserted substantially
similar defenses to such bond
obligation;
(3) Such defenses were considered by
the agency under pertinent authorities
and dismissed;
(4) Treasury made a final decision
that revocation of the surety’s certificate
was justified; and
(5) Other pertinent factors.
(h) Informal Hearing. (1) If a surety
that is the subject of a paragraphs (a)
and (b) of this section complaint
believes the opportunity to make known
its views, as provided for under
§ paragraph (c) of this section, is
inadequate, it may, within 20 business
days of the date of the notice required
by paragraph (c), request, in writing,
that an informal hearing be convened.
(2) As soon as possible after a written
request for an informal hearing is
received, the Reviewing Official shall
convene an informal hearing, at such
time and place as he or she deems
appropriate, for the purpose of
determining whether the surety’s
certificate of authority should be
revoked.
(3) The surety shall be advised, in
writing, of the time and place of the
informal hearing and shall be directed
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to bring all documents, records and
other information as it may find
necessary and relevant to support its
position.
(4) The surety may be represented by
counsel and shall have a fair
opportunity to present any relevant
material and to examine the
administrative record.
(5) The complaining agency may be
requested by the Reviewing Official to
send a representative to the hearing to
present any relevant material, and the
agency representative may examine the
administrative record.
(6) Formal rules of evidence will not
apply at the informal hearing.
(7) The formal adjudication standards
under the Administrative Procedures
Act, 5 U.S.C. 554, 556, 557 do not apply
to the informal hearing or adjudication
process.
(8) Treasury may promulgate
additional procedural guidance
governing the conduct of informal
hearings. This additional procedural
guidance may be contained in the
Annual Letter to Executive Heads of
Surety Companies referenced in 31 CFR
223.9, the Treasury Financial Manual,
or other Treasury publication or
correspondence.
(9) Upon completion of the informal
hearing, the Reviewing Official shall
prepare a written Recommendation
Memorandum addressed to the
Assistant Commissioner, Management,
or incumbent Treasury executive,
setting forth findings and a
recommended disposition. The
Assistant Commissioner, Management,
or incumbent Treasury executive, will
be the Deciding Official who will make
the final decision whether the surety’s
certificate of authority to write and
reinsure Federal bonds should be
revoked based on the administrative
record. For these purposes, the
administrative record consists of the
Federal agency complaint referenced in
paragraphs (a) and (b) of this section,
the surety response referenced in
paragraph (c), any other documentation
submitted to, or considered by, or
entered into the administrative record
by the Reviewing Official, the hearing
transcript, and the Reviewing Official’s
Recommendation Memorandum.
(10) The provisions of paragraphs (e),
(f), and (g) of this section shall apply to
the adjudication of the agency
complaint when an informal hearing is
conducted.
17. Revise § 223.21 to read as follows:
§ 223.21
Reinstatement.
If, after one year from the date of the
expiration or the revocation of its
certificate of authority under this part,
VerDate Mar<15>2010
14:47 Mar 16, 2011
Jkt 223001
a company can demonstrate that the
basis for the non-renewal or revocation
has been eliminated or effectively cured,
as determined by Treasury in its
discretion, and that it can comply with,
and does meet, all continuing
requirements for certification under 31
U.S.C. 9304–9308 and this part, the
company may submit an application to
Treasury for reinstatement or reissuance
of a certificate of authority, which will
be granted without prejudice, provided
all such requirements are met.
18. In § 223.22, revise paragraph (c) to
read as follows:
§ 223.22 Fees for services of the Treasury
Department.
*
*
*
*
*
(c) Specific fee information may be
obtained from the Assistant
Commissioner, Management, or
incumbent Treasury executive, or online
at https://www.fms.treas.gov/c570. In
addition, a notice of the amount of a fee
referred to in paragraphs (a)(1) through
(4) of this section will be published in
the Federal Register as each change in
such fee is made.
Dated: March 11, 2011.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2011–6277 Filed 3–16–11; 8:45 am]
BILLING CODE P
DEPARTMENT OF VETERANS
AFFAIRS
38 CFR Part 3
RIN 2900–AN28
Dental Conditions
Department of Veterans Affairs.
Proposed rule.
AGENCY:
ACTION:
The Department of Veterans
Affairs (VA) proposes to amend its
adjudication regulations regarding
service connection of dental conditions
for treatment purposes. The regulations
currently state several principles
governing determinations by VA’s
Veterans Benefits Administration (VBA)
of service connection of dental
conditions for the purpose of
establishing eligibility for dental
treatment by VA’s Veterans Health
Administration (VHA). We propose to
clarify that those principles apply only
when VHA requests information or a
rating from VBA for those purposes. The
amendments are to clarify existing
regulatory provisions and to reflect the
respective responsibilities of VHA and
VBA in determinations concerning
eligibility for dental treatment.
SUMMARY:
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
Comments must be received by
VA on or before May 16, 2011.
ADDRESSES: Written comments may be
submitted through
www.Regulations.gov; by mail or handdelivery to Director, Regulations
Management (02REG), Department of
Veterans Affairs, 810 Vermont Avenue,
NW., Room 1068, Washington, DC
20420; or by fax to (202) 273–9026.
(This is not a toll-free number.)
Comments should indicate that they are
submitted in response to ‘‘RIN 2900–
AN28—Dental Conditions.’’ Copies of
comments received will be available for
public inspection in the Office of
Regulation Policy and Management,
Room 1063B, between the hours of
8 a.m. and 4:30 p.m., Monday through
Friday (except holidays). Please call
(202) 461–4902 for an appointment.
(This is not a toll-free number.) In
addition, during the comment period,
comments may be viewed online
through the Federal Docket Management
System at www.Regulations.gov.
FOR FURTHER INFORMATION CONTACT: Tom
Kniffen, Regulations Staff (211D),
Compensation and Pension Service,
Veterans Benefits Administration,
Department of Veterans Affairs, 810
Vermont Avenue, NW., Washington, DC
20420, (202) 461–9725. (This is not a
toll-free number.)
SUPPLEMENTARY INFORMATION: VA’s
adjudication regulation regarding
service connection of dental conditions
for treatment purposes, 38 CFR 3.381,
identifies circumstances under which
dental conditions that may not qualify
as disabilities for purposes of VA
disability compensation may
nevertheless be service connected for
purposes of VA dental treatment under
38 U.S.C. 1712 and 38 CFR 17.161.
Because VHA has primary responsibility
for determining eligibility for dental
treatment, VBA will prepare a rating
decision under § 3.381 only when VHA
requests such a rating or information
necessary to assist in its determination.
This circumstance is not clearly stated
in the current regulation. Accordingly,
we propose to amend § 3.381 to state
this requirement.
VA’s statute and regulation regarding
dental conditions, 38 U.S.C. 1712 and
38 CFR 17.161, contain the eligibility
requirements for dental treatment.
Eligibility for dental treatment is
extremely limited. VHA will provide
certain dental treatment to veterans:
• Who have a service-connected
compensable dental condition (i.e.,
those subject to service connection for
compensation purposes under the 9900
diagnostic code series) (Class I)
DATES:
E:\FR\FM\17MRP1.SGM
17MRP1
Agencies
[Federal Register Volume 76, Number 52 (Thursday, March 17, 2011)]
[Proposed Rules]
[Pages 14592-14600]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-6277]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Fiscal Service
31 CFR Part 223
RIN 1510-AB27
Surety Companies Doing Business With the United States
AGENCY: Financial Management Service, Fiscal Service, Treasury.
ACTION: Notice of proposed rulemaking with request for comment.
-----------------------------------------------------------------------
SUMMARY: The Department of the Treasury, Financial Management Service
(Treasury), administers the Federal corporate surety program. Treasury
issues certificates of authority to qualified sureties to underwrite
and reinsure Federal bond obligations. We are proposing to amend our
regulation to clarify the circumstances when an agency bond-approving
official can decline to accept a bond underwritten by a Treasury-
certified surety. We are
[[Page 14593]]
also proposing to amend the procedures to be used by Treasury in
adjudicating any complaint received from an agency requesting that a
surety's certificate be revoked for failure to satisfy an
administratively final bond obligation due the agency.
DATES: Comments on the proposed rule must be received by May 16, 2011.
ADDRESSES: The Financial Management Service participates in the U.S.
government's eRulemaking Initiative by publishing rulemaking
information on https://www.regulations.gov. Regulations.gov offers the
public the ability to comment on, search, and view publicly available
rulemaking materials, including comments received on rules.
Comments on this rule, identified by docket FISCAL-FMS-2010-0001,
should only be submitted using the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions on the Web site for submitting comments.
Mail: Rose Miller, Manager, Surety Bond Branch, Financial
Management Service, 3700 East-West Highway, Room 6F01, Hyattsville, MD
20782.
The fax and e-mail methods of submitting comments on rules to FMS
have been retired.
Instructions: All submissions received must include the agency name
(``Financial Management Service'') and docket number FISCAL-FMS-2010-
0001 for this rulemaking. In general, comments will be published on
Regulations.gov without change, including any business or personal
information provided. Comments received, including attachments and
other supporting materials, are part of the public record and subject
to public disclosure. Do not enclose any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
FOR FURTHER INFORMATION CONTACT: Rose Miller, Manager, Surety Bond
Branch, Financial Management Service, at (202) 874-6850 or
rose.miller@fms.treas.gov, or James J. Regan, Senior Counsel, Financial
Management Service, at (202) 874-6680 or james.regan@fms.treas.gov.
SUPPLEMENTARY INFORMATION:
I. Background
Treasury is responsible for administering the corporate Federal
surety bond program under the authority of 31 U.S.C. 9304-9308 and 31
CFR part 223 (part 223). Congress delegated to Treasury the discretion
to issue a certificate if Treasury decides the surety's articles of
incorporation authorize it to engage in the business of surety, the
corporation has the requisite paid-up capital, cash, or equivalent
assets, and the corporation is able to carry out its contracts.
Treasury evaluates the qualifications of sureties to write Federal
bonds and issues certificates of authority to those sureties that meet
the specified corporate and financial standards. Treasury publishes the
list of certified sureties in Department Circular 570 which is
available online at https://www.fms.treas.gov/c570. Federal bond-
approving officials consult and rely on this list whenever a corporate
surety bond is presented to an agency because bonds underwritten by
Treasury-certified sureties satisfy bonding requirements, provided such
bonds are accepted by agency bond-approving officials.
Treasury finds it necessary to clarify the circumstances under
which a Federal agency bond-approving official can decline to accept a
bond underwritten by a Treasury-certified surety. Federal agencies have
sometimes continued to accept bonds from a certified surety, even when
the surety owes the agency an administratively final bond obligation,
believing that Treasury certification mandates such acceptance in all
cases. This is not the case.
The proposed rule would clarify that Treasury certification does
not insulate a surety from the requirement to satisfy administratively
final bond obligations in order to ensure that its bonds will be
accepted by agencies in all cases. Specifically, under the proposed
rule, an agency bond-approving official would have the discretion to
decline to accept bonds underwritten by a Treasury-certified surety for
cause, such as when the surety owes the agency an unpaid or unsatisfied
bond obligation that is administratively final under agency procedures.
This discretion is not without limit. Before declining to accept bonds
from a Treasury-certified surety, an agency must provide the surety
advance written notice stating: (i) The intention of the agency to
decline bonds underwritten by the surety, (ii) the reasons for or cause
of the proposed non-acceptance of such bonds, (iii) the opportunity for
the surety to rebut the stated reasons or cause, and (iv) the surety's
opportunity to cure the stated reasons or cause. Under the proposed
rule, the agency may decline the bonds underwritten by the certified
surety if, after consideration of any submission by the surety, the
agency issues a written determination that the bonds should be
declined. The agency is required to articulate standards for exercising
its discretion to decline bonds from Treasury-certified sureties in an
agency rule or regulation prior to declining any bonds in specific
cases.
The proposed rule is consistent with the general and permanent
surety laws that were enacted by Congress and later codified, without
substantive change, as 31 U.S.C. 9304(b). The surety statutory
framework is derived from public laws enacted in 1894 and 1910. The Act
of August 13, 1894, 28 Stat. 279, as amended by The Act of March 23,
1910, 36 Stat. 241, provided that a bond underwritten by a Treasury-
certified surety satisfied bonding requirements ``Provided, That such
recognizance, stipulation, bond, or undertaking be approved by the head
of department, court, judge, officer, board, or body executive,
legislative, or judicial required to approve or accept the same.'' This
proviso conditioned acceptance of a bond on the approval by an agency.
This language was first codified in 1925 as 6 U.S.C. 6, and codified
again in 1982 as 31 U.S.C. 9304(b), without substantive change. See,
e.g., The Code of the Laws of the United States of America, December 7,
1925, Preface Statement (The codification is the official restatement
of the general and permanent laws of the United States, and under the
codification ``No new law is enacted and no law repealed''); Public Law
97-258 (1982), 96 Stat. 877, 1047 (Codification enacted ``without
substantive change'').
Federal courts have affirmed that Section 9304(b), and its
predecessor derivations, afford agency bond-approving officials
discretion to decline the acceptance of a bond underwritten by a
Treasury-certified surety, consistent with the due process standards
articulated in the proposed rule. See Concord Casualty & Surety Co. v.
United States, 69 F.2d 78, 81 (2d Cir. 1934)(The bond-approval
official's approval of a bond underwritten by a Treasury-certified
surety ``is not mandatory'' but calls for the exercise of wise
discretion); American Druggists Ins. Co. v. Bogart, 707 F.2d 1229, 1233
(11th Cir. 1983)(``The surety's approval by the Secretary of the
Treasury * * * does not preclude the district court from exercising its
discretion to approve only those [bail] bonds which it feels confident
will result in the defendant's presence at trial'' and ``Section
9304(b) impliedly authorizes this discretion in its provision that
`each surety bond shall be approved by the official of the Government
required to approve or accept the bond.' '').
The proposed text is also consistent with 31 U.S.C. 9305(d)(3)
which authorizes Treasury to require
[[Page 14594]]
additional security in circumstances when the surety is no longer
sufficient. Specifically, Treasury believes the discretion afforded to
agency bond-approving officials under the proposed text is appropriate
because a surety that has not paid an administratively final bond
obligation to an agency, even after due process has been afforded, is
no longer providing sufficient security vis-[agrave]-vis the agency.
The proposed rule is necessary to better facilitate the prompt
resolution of bond disputes between Federal agencies and sureties.
Under the current rule, the status of Treasury certification has had
the unintended consequence of inhibiting the proper adherence to agency
administrative processes in bond dispute matters. In practice, this has
negatively impacted the ability to resolve administratively final bond
obligation disputes at the agency level. In a limited number of cases,
sureties appear to have simply ignored agency final decisions for
extended periods of time. While these cases are anomalous and rare,
they represent an unwelcome burden on the Treasury and the public fisc
because the administratively final bond obligations at issue were not
paid, or resolved, promptly.
Thus, the proposed rule would clarify that agencies have two
options when experiencing surety performance and collection problems.
First, an agency owed an administratively final bond obligation by a
certified surety has the discretion to decline acceptance of additional
bonds underwritten by such surety, provided the due process standards
articulated in the rule are satisfied. Second, an agency owed an
administratively final bond obligation by a certified surety can submit
a complaint to Treasury requesting that the surety's certificate be
revoked.
With regard to this second option, the proposed rule would clarify
the procedures and standard of review that will be used by Treasury to
adjudicate any complaint submitted by an agency to Treasury requesting
that a surety's certificate be revoked for failure to satisfy an
administratively final bond obligation. Under the proposed rule,
Treasury will not conduct a de novo review of the administratively
final agency determination that a bond obligation is past due because
substantive agency bond obligation determinations are based, in large
part, on the interpretation and application of laws that the agency,
rather than Treasury, has been tasked by Congress with administering.
Treasury will not substitute its judgment for that of the agency in
determining whether a bond obligation is owed under agency authorities.
Rather, in considering whether the surety's certificate should be
revoked, Treasury will review whether the agency's administratively
final decision (that the surety owes a past-due bond obligation) was
reasonable, based on a consideration of relevant factors, and did not
involve a clear error of judgment.
To the extent that a surety requests Treasury to conduct an
informal hearing before reaching its decision on whether the surety's
certificate should be revoked, the proposed rule clarifies that the
formal adjudication standards under the Administrative Procedures Act,
5 U.S.C. 554, 556, and 557, do not apply to the conduct of such an
informal hearing. This is appropriate because Treasury's surety
statutes, 31 U.S.C. 9304-9308, do not require a formal adjudication to
be determined on the record after an opportunity for a hearing. See,
e.g., 5 U.S.C. 554(a)(formal adjudication procedures only apply in
cases ``required by statute to be determined on the record after an
opportunity for an agency hearing''). Moreover, a surety's property
interest in its certificate is narrow. American Druggists Ins. Co. v.
Bogart, 707 F.2d 1229, 1235 (11th Cir. 1983)(``The scope of the
surety's protected interest arising from the federal regulatory scheme
is indeed narrow.''). Given this narrow interest, the opportunity for a
surety to request an informal hearing under the standards articulated
in the proposed rule is consistent with due process requirements that
the surety be given an opportunity to be heard ``at a meaningful time
and in a meaningful manner.'' See, e.g., Matthews v. Eldridge, 424 U.S.
319, 333 (1976)(Fundamental due process satisfied if the individual is
given an opportunity to be heard ``at a meaningful time and in a
meaningful manner'').
In addition, Treasury is proposing to make certain technical
amendments to part 223 to update statutory citations and to provide
current Treasury point of contact information.
II. Section-by-Section Analysis
Section 223.1
We are proposing to amend Sec. 223.1 by stating, in plain
language, that part 223 governs the issuance and revocation of
certificates of authority of surety companies to do business with the
United States as sureties on, or reinsurers of, Federal surety bond
obligations, and the acceptance of such obligations. The proposed rule
deletes archaic language and clarifies that the U.S. Department of the
Treasury, Financial Management Service (Treasury), acts on behalf of
the Secretary of the Treasury in performing these duties.
Section 223.2
We are proposing to amend Sec. 223.2 to clarify that applications
for certificates of authority should be submitted to Treasury at the
location, and in the manner, specified online at https://www.fms.treas.gov/c570, as amended from time to time.
Section 223.3
Section 223.3(a) establishes the requirements that must be met by
an applicant company in order to be issued a certificate of authority
by Treasury. Proposed Sec. 223.3(a) restates such requirements in
plain language. In addition, the proposed regulation clarifies that any
certificate issued by Treasury is expressly subject to the continuing
compliance by the surety with all statutory requirements and the other
conditions referenced in this part.
Section 223.4
Section 223.4 provides that no company will be issued a certificate
of authority by Treasury unless it maintains on deposit with the
insurance commissioner of the State in which it is incorporated, or
other specified State official, legal investments having a current
market value of not less than $100,000, for the protection of
claimants, including the surety's policyholders in the United States.
Proposed Sec. 223.4 would add a sentence requiring a company to submit
to Treasury with its initial application for a certificate of
authority, and annually thereafter, a written statement signed by the
State official attesting to the current market value of the deposit
(not less than $100,000) and that the legal investments remain on
deposit with the State.
Section 223.8
Section 223.8 requires Treasury-certified sureties to file annual
and quarterly financial reports to Treasury for review. Proposed Sec.
223.8(a) updates the specified Treasury official to whom these reports
should be submitted.
Section 223.9
Section 223.9 establishes the criteria by which Treasury values the
assets and liabilities of a company for certificate of authority
purposes. Section 223.9 provides that Treasury will allow credit for
reinsurance in all classes of risk if the reinsuring company holds a
certificate of authority from Treasury, or has been recognized as an
admitted reinsurer by Treasury. Proposed Sec. 223.9 clarifies that
this credit for reinsurance
[[Page 14595]]
will be allowed only if the reinsurer is in continuing compliance with
all certificate of authority requirements.
Section 223.11
Section 223.11(b) provides that a surety can underwrite a Federal
bond in excess of its underwriting limitation if the excess amount is
reinsured by a company holding a certificate of authority issued by
Treasury, provided the specified reinsurance requirements are met.
Proposed Sec. 223.11(b) clarifies that the requisite reinsurance bond
forms are available on the General Services Administration Web site at
https://www.gsa.gov.
Section 223.12
Section 223.12 establishes the application requirements and
standards for a company to be recognized by Treasury as an admitted
reinsurer (except on excess risks running to the United States) for
surety companies doing business with the United States. When a
Treasury-certified surety cedes non-Federal risks to an admitted
reinsurer, Treasury will credit the surety for the ceded reinsurance
when valuing its assets and liabilities, provided applicable
requirements are met. Proposed Sec. 223.12 updates the specified
Treasury official to whom applications and reports pertaining to
admitted reinsurer status should be submitted.
Section 223.16
Proposed Sec. 223.16, List of certificate holding companies, adds
a new fourth sentence to this subpart providing: ``Bonds underwritten
by certified companies on the Department Circular No. 570 list may be
presented to an agency bond-approving official for acceptance.''
Proposed Sec. 223.16 adds a final sentence to this subpart providing:
``Selection of a particular qualified company from among all companies
holding certificates of authority is discretionary with the principal
required to furnish the bond, but the acceptance of a bond by an agency
bond-approving official is subject to Sec. 223.17.''
This proposed text clarifies that Treasury-certified sureties have
the opportunity to present their bonds to an agency bond-approving
official for acceptance, but that the actual acceptance of a bond by an
agency bond-approving official is subject to proposed Sec. 223.17.
Section 223.17
Proposed Sec. 223.17, Acceptance and non-acceptance of bonds,
clarifies that every surety holding a Treasury-issued certificate of
authority has the opportunity to present its bonds to an agency bond-
approving official for acceptance, and that such bond-approving
official may accept such proffered bonds in all cases. It also
clarifies, however, that an agency bond-approving official has the
discretion to decline bonds underwritten by a Treasury-certified surety
for cause, provided the specified due process protections are
satisfied. The agency is required to articulate standards for
exercising its discretion not to accept bonds from Treasury-certified
sureties in an agency rule or regulation prior to declining any bonds
in specific cases. Existing agency rules or regulations that
substantially comply with, or that are consistent with, the requirement
to articulate standards in advance meet the requirements of this
paragraph.
Under proposed Sec. 223.17, for cause is primarily defined to mean
that a surety has not paid or satisfied an administratively final bond
obligation due the agency. The articulation of this primary definition
is not intended to preclude an agency from articulating additional
``for cause'' reasons, provided such reasons are defined in an agency
rule or regulation in advance, and such additional reasons are
otherwise consistent with an agency's own authorities. See, e.g., 27
CFR 25.101 (Existing Treasury Tax and Trade Bureau (TTTB) regulation
authorizing rejection of a bond for substantive reason consistent with
that agency's mission; under Sec. 25.101, TTTB can disapprove a bond
if the surety has been convicted of any fraudulent noncompliance with
any provision of law of the United States related to internal revenue
or customs taxation of distilled spirits, wines, or beer).
The authority of an agency to decline the acceptance of bonds ``for
cause'' under this proposed paragraph would not apply when the for
cause basis, e.g., the obligation of the surety to satisfy
administratively final bond obligations owed the agency, has been
stayed or enjoined by a court of competent jurisdiction.
Section 223.18
Proposed Sec. 223.18, Revocation, clarifies that revocation of a
surety's certificate of authority by Treasury can occur in two ways.
First, Treasury can initiate a revocation proceeding on its own
initiative under proposed Sec. 223.19, Treasury initiated revocation
proceedings, when it has reason to believe that a surety is not
complying with 31 U.S.C. 9304-9308 and/or the regulations under part
223. Second, Treasury can initiate a revocation proceeding under
proposed Sec. 223.20, Revocation proceedings initiated by Treasury
upon receipt of an agency complaint, upon receipt of a complaint from
an agency that a surety has not satisfied an administratively final
bond obligation.
Section 223.19
Proposed Sec. 223.19, Treasury initiated revocation proceedings,
outlines the process by which Treasury initiates proceedings on its own
accord to revoke a surety's certificate of authority for failure to
meet the requirements of 31 U.S.C. 9304-9308 and/or part 223. These
proceedings can be initiated due to a failure to meet financial
strength requirements or any other requirement.
Section 223.20
Proposed Sec. 223.20, Revocation proceedings initiated by Treasury
upon receipt of an agency complaint, specifies the process for an
agency to submit a complaint to Treasury requesting that a certified
surety's certificate of authority be revoked for failure to satisfy an
administratively final bond obligation. Proposed Sec. 223.20 affords
the surety the opportunity to demonstrate its qualifications to retain
its certificate, establishes the roles of the Treasury Reviewing
Official and the Treasury Deciding Official in the adjudicative
process, and establishes the standard of review to be used by the
Reviewing and Deciding Officials in reaching a decision.
The Treasury Reviewing and Deciding Officials will not conduct a de
novo review of the agency's administratively final determination that a
bond obligation is past due because substantive agency bond obligation
determinations are based, in large part, on the interpretation and
application of laws that the complaining agency, rather than Treasury,
has been tasked by Congress with administering. The Treasury Reviewing
and Deciding Officials will not substitute their judgment for that of
the agency. Rather, in reviewing whether revocation is justified,
Treasury will consider whether the agency's final decision (that the
surety owes a past-due bond obligation) was reasonable, based on a
consideration of relevant factors, and did not involve a clear error of
judgment.
As a general rule, proposed Sec. 223.20 anticipates that Treasury
will adjudicate agency complaints without an informal oral hearing.
Proposed Sec. 223.20(c) ensures that the surety is afforded a fair
opportunity to demonstrate, in writing, its qualifications to retain
its certificate before a decision is reached. Nevertheless, in the
event a surety
[[Page 14596]]
believes the opportunity to make known its views is inadequate, it may
request that Treasury convene an informal hearing before reaching a
decision under the timeframes established in the proposed rule.
Proposed Sec. 223.20(h) specifies the procedures under which such an
informal hearing would be conducted.
In the event that the Treasury Deciding Official sustains the
agency's complaint and makes a decision that the surety's certificate
should be revoked, proposed Sec. 223.20 clarifies that a surety will
be afforded an opportunity to cure the noncompliance to avoid
decertification, unless its noncompliance is ``willful.'' Proposed
Sec. 223.20(g) articulates the scope and application of the willful
exception to the cure opportunity.
Section 223.21
Proposed Sec. 223.21, Reinstatement, provides that a surety whose
certificate of authority has been revoked, or not renewed, by Treasury
can apply for reissuance of a certificate of authority after one year.
Among other things, such a surety must demonstrate as a condition of
reinstatement that the basis for the non-renewal or revocation of its
certificate has been eliminated. Under proposed Sec. 223.21 the
determination of whether the basis for the non-renewal or revocation
has been eliminated or effectively cured will be made by Treasury in
its discretion.
Derivation Chart for Revised Part 223
------------------------------------------------------------------------
Old section New section
------------------------------------------------------------------------
-- 223.17
223.17 223.18
-- 223.19
223.18 223.20
223.19 223.20
223.20 223.20
223.21 223.21
223.22 223.22
------------------------------------------------------------------------
III. Procedural Analyses
Request for Comment on Plain Language
Executive Order 12866 requires each agency in the Executive branch
to write regulations that are simple and easy to understand. We invite
comment on how to make the proposed rule clearer. For example, you may
wish to discuss: (1) Whether we have organized the material to suit
your needs; (2) whether the requirements of the rules are clear; or (3)
whether there is something else we could do to make these rules easier
to understand.
Regulatory Planning and Review
The proposed rule does not meet the criteria for a ``significant
regulatory action'' as defined in Executive Order 12866. Therefore, the
regulatory review procedures contained therein do not apply.
Regulatory Flexibility Act Analysis
It is hereby certified that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
Treasury-certified sureties already have an existing obligation to make
payment on bond obligations to ensure acceptance of their bonds by
agency bond-approving officials under 31 U.S.C. 9304(b). The proposed
rule merely codifies this existing obligation in the regulation and
clarifies that Federal agencies can decline to accept bonds
underwritten by Treasury-certified sureties in limited circumstances,
primarily when the surety owes the agency an administratively final
bond obligation. In addition, Treasury-certified sureties have an
existing obligation to make payment on bond obligations or be subject
to Treasury certificate revocation proceedings. The proposed rule
merely clarifies the procedures and standard of review that will be
used by Treasury in adjudicating revocation complaints submitted by
agencies. Payment disputes involving Treasury-certified sureties are
anomalous and rare. The proposed rule will not have a significant
economic impact on a substantial number of small entities. Accordingly,
a regulatory flexibility analysis under the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) is not required.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that the agency prepare a
budgetary impact statement before promulgating any rule likely to
result in a Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
also requires the agency to identify and consider a reasonable number
of regulatory alternatives before promulgating the rule. We have
determined that the proposed rule will not result in expenditures by
State, local, and tribal governments, or by the private sector, of $100
million or more in any one year. Accordingly, we have not prepared a
budgetary impact statement or specifically addressed any regulatory
alternatives.
List of Subjects in 31 CFR Part 223
Administrative practice and procedure, Surety bonds.
For the reasons set out in the preamble, we propose to amend 31 CFR
part 223 as set forth below:
PART 223--SURETY COMPANIES DOING BUSINESS WITH THE UNITED STATES
1. Revise the authority citation for part 223 to read as follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 9304-9308.
2. Revise Sec. 223.1 to read as follows:
Sec. 223.1 Certificate of authority.
The regulations in this part will govern the issuance by the
Secretary of the Treasury, acting through the U.S. Department of the
Treasury, Financial Management Service (Treasury), of certificates of
authority to bonding companies to do business with the United States as
sureties on, or reinsurers of, Federal surety bonds (hereinafter
``bonds'' or ``obligations'') under the authority of 31 U.S.C. 9304-
9308 and this part, and the acceptance of such obligations. The
regulations in this part also govern the revocation of certificates.
3. Revise Sec. 223.2 to read as follows:
Sec. 223.2 Application for certificate of authority.
Every company wishing to apply for a certificate of authority shall
submit an application to the Financial Management Service, U.S.
Department of the Treasury, c/o Surety Bond Branch, to the location,
and in the manner, specified online at https://www.fms.treas./c570, as
amended from time to time. In accordance with 31 U.S.C. 9305(a), the
data will include a copy of the applicant's charter or articles of
incorporation and a statement, signed and sworn to by its president and
secretary, showing its assets and liabilities. A fee shall be
transmitted with the application in accordance with the provisions of
Sec. 223.22(a)(i).
4. In Sec. 223.3, revise paragraph (a) to read as follows:
Sec. 223.3 Issuance of certificates of authority.
(a)(1) A company submitting an application to be issued a
certificate of authority by Treasury to underwrite and reinsure Federal
surety bonds must include all required data and information, as
determined by Treasury
[[Page 14597]]
in its discretion, for the application to be complete and ready for
review. Upon receipt of a complete application, Treasury will evaluate
the submission to determine whether the applicant company:
(i) Is duly authorized under its charter or articles of
incorporation to conduct the business referenced under 31 U.S.C.
9304(a)(2);
(ii) Has paid-up capital of at least $250,000 in cash or its
equivalent;
(iii) Is solvent and financially and otherwise qualified to conduct
the business referenced under 31 U.S.C. 9304(a)(2); and
(iv) Is able and willing to carry out its contracts. In making the
determination whether a company meets these requirements, Treasury will
evaluate the application as a whole, the required financial
statement(s) submitted by the company, the company's charter or
articles of incorporation, the past history of the company, and any
further evidence or information that Treasury may require the company
to submit (at the company's expense).
(2) If Treasury determines, in its discretion, that the applicant
company meets all of these requirements, Treasury will issue a
certificate of authority to the company authorizing it to underwrite
and reinsure Federal bonds. The certificate of authority will be
effective for a term that expires on the last day of the next June. All
such statutory requirements and regulatory requirements under this part
are continuing obligations, and any certificate is issued expressly
subject to continuing compliance with such requirements. The
certificate of authority will be renewed annually on the first day of
July, provided the company remains qualified under the law, the
regulations in this part, and other pertinent Treasury requirements,
and the company submits the fee required under Sec. 223.22 by March
1st of each year to the address and/or account specified by Treasury.
* * * * *
5. In Sec. 223.4, add a sentence to the end of the section to read
as follows:
Sec. 223.4 Deposits.
* * * The company shall submit to Treasury with its initial
application for a certificate of authority, and annually thereafter, a
written statement signed by such State official attesting to the
current market value of the deposit (not less than $100,000) and that
the legal investments remain on deposit with the State under the terms
specified.
6. In Sec. 223.8, revise paragraph (a) to read as follows:
Sec. 223.8 Financial reports.
(a) Every such company will be required to file with the Assistant
Commissioner, Management, or incumbent Treasury executive, on or before
the last day of January of each year, a statement of its financial
condition made up as of the close of the preceding calendar year upon
the annual statement blank adopted by the National Association of
Insurance Commissioners, signed and sworn to by its president and
secretary. On or before the last days of April, July and October of
each year, every such company shall file a financial statement with the
Assistant Commissioner, Management, or incumbent Treasury executive as
of the last day of the preceding month. A form is prescribed by the
Treasury for this purpose. The quarterly statement form of the National
Association of Insurance Commissioners when modified to conform to the
Treasury's requirements, may be substituted for the Treasury's form.
The quarterly statement will be signed and sworn to by the company's
president and secretary or their authorized designees.
* * * * *
7. In Sec. 223.9, revise the last sentence to read as follows:
Sec. 223.9 Valuation of assets and liabilities.
* * * Credit will be allowed for reinsurance in all classes of
risks if the reinsuring company holds a certificate of authority from
the Secretary of the Treasury, provided such reinsuring company is in
continuing compliance with all certificate of authority requirements,
or has been recognized as an admitted reinsurer in accord with Sec.
223.12.
8. In Sec. 223.11, revise paragraph (b)(1) to read as follows:
Sec. 223.11 Limitation of risk: Protective methods.
* * * * *
(b) Reinsurance. (1) In respect to bonds running to the United
States, liability in excess of the underwriting limitation shall be
reinsured within 45 days from the date of execution and delivery of the
bond with one or more companies holding a certificate of authority from
the Secretary of the Treasury. Such reinsurance shall not be in excess
of the underwriting limitation of the reinsuring company. Where
reinsurance is contemplated, Federal agencies may accept a bond from
the direct writing company in satisfaction of the total bond
requirement even though it may exceed the direct writing company's
underwriting limitation. Within the 45 day period, the direct writing
company shall furnish to the Federal agency any necessary reinsurance
agreements. However, a Federal agency may, at its discretion, require
that reinsurance be obtained within a lesser period than 45 days, and
may require completely executed reinsurance agreements to be provided
before making a final determination that any bond is acceptable.
Reinsurance may protect bonds required to be furnished to the United
States by the Miller Act (40 U.S.C. 3131, as amended) covering
contracts for the construction, alteration, or repair of any public
building or public work of the United States, as well as other types of
Federal bonds. Use of reinsurance or coinsurance to protect such bonds
is at the discretion of the direct writing company. Reinsurance shall
be executed on reinsurance agreement forms: Standard Form 273
(Reinsurance Agreement for a Miller Act Performance Bond), Standard
Form 274 (Reinsurance Agreement for a Miller Act Payment Bond), and
Standard Form 275 (Reinsurance Agreement in Favor of the United States
for other types of Federal bonds). These Standard Forms are available
on the General Services Administration Web site at https://www.gsa.gov.
* * * * *
9. In Sec. 223.12, revise paragraph (a) introductory text,
paragraph (a)(5), paragraph (b) introductory text, and paragraph (c) to
read as follows:
Sec. 223.12 Recognition as reinsurer.
(a) Application by U.S. company. Any company organized under the
laws of the United States or of any State thereof, wishing to apply for
recognition as an admitted reinsurer (except on excess risks running to
the United States) of surety companies doing business with the United
States, shall file the following data with the Assistant Commissioner,
Management, or incumbent Treasury executive, and shall transmit
therewith the fee in accordance with the provisions of Sec. 223.22:
* * * * *
(5) Such other evidence as Treasury may determine is necessary to
establish that it is solvent and able to meet the continuing obligation
to carry out its contracts.
(b) Application by a U.S. branch. A U.S. branch of an alien company
applying for such recognition shall file the following data with the
Assistant Commissioner, Management, or incumbent Treasury executive,
and shall transmit therewith the fee in
[[Page 14598]]
accordance with the provisions of Sec. 223.22:
* * * * *
(c) Financial reports. Each company recognized as an admitted
reinsurer shall file with the Assistant Commissioner, Management, or
incumbent Treasury executive, on or before the first day of March of
each year its financial statement and such additional evidence as the
Secretary of the Treasury determines necessary to establish that the
requirements of this section are being met. A fee shall be transmitted
with the foregoing data, in accordance with the provisions of Sec.
223.22.
10. Revise Sec. 223.16 to read as follows:
Sec. 223.16 List of certificate holding companies.
A list of qualified companies is published annually as of July 1 in
Department Circular No. 570, Companies Holding Certificates of
Authority as Acceptable Sureties on Federal Bonds and as Acceptable
Reinsuring Companies, with information as to underwriting limitations,
areas in which listed sureties are licensed to transact surety business
and other details. If the Secretary of the Treasury shall take any
exceptions to the annual financial statement submitted by a company, he
or she shall, before issuing Department Circular 570, give a company
due notice of such exceptions. Copies of the Circular are available at
https://www.fms.treas.gov/c570, or from the Assistant Commissioner,
Management, or incumbent Treasury executive, upon request. Bonds
underwritten by certified companies on the Department Circular No. 570
list may be presented to an agency bond-approving official for
acceptance. Selection of a particular qualified company from among all
companies holding certificates of authority is discretionary with the
principal required to furnish the bond, but the acceptance of a bond by
an agency bond-approving official is subject to Sec. 223.17.
11. Revise Sec. 223.17 to read as follows:
Sec. 223.17 Acceptance and non-acceptance of bonds.
(a) Acceptance of bonds. A bond underwritten by a certified company
on the Sec. 223.16 Department Circular No. 570 list may be presented
to an agency-bond approving official for acceptance, and such agency
bond-approving official may accept such bonds.
(b) Non-acceptance of bonds. (1) An agency bond-approving official
has the discretion not to accept bond(s) underwritten by a certified
company on the Sec. 223.16 List of certificate holding companies,
Department Circular No. 570, for cause, but only if the certified
surety has been given advance written notice by such agency. The
advance written notice shall state:
(i) The intention of the agency to decline bond(s) underwritten by
the surety;
(ii) The reasons for or cause of the proposed non-acceptance of
such bond(s);
(iii) The opportunity for the surety to rebut the stated reasons or
cause; and
(iv) The surety's opportunity to cure the stated reasons or cause.
(2) The agency may decline to accept bond(s) underwritten by the
surety if, after consideration of any submission by the surety or
failure of the surety to respond to the agency notice, the agency
issues a written determination that the bond(s) should not be accepted,
consistent with agency standards. The agency shall articulate its
standards for exercising its discretion not to accept bonds under this
paragraph in an agency rule or regulation prior to declining any bonds
in specific cases. ``For cause'' is primarily defined to mean that a
surety has not paid or satisfied an administratively final bond
obligation due the agency. The articulation of this primary definition
is not intended to preclude an agency from articulating additional
``for cause'' reasons, providing such reasons are defined in an agency
rule or regulation in advance, and such additional reasons are
otherwise consistent with an agency's own authorities. Existing agency
rules or regulations that substantially comply with, or that are
consistent with, the requirement to articulate standards in advance
meet the requirements of this paragraph.
(3) Agencies that decline bonds under this paragraph are encouraged
to use best efforts to ensure that persons conducting business with the
agency are aware that bonds underwritten by the particular certified
surety will not be accepted.
(4) The authority to decline bonds under this paragraph does not
apply when the ``for cause'' basis, e.g., the obligation of the surety
to satisfy administratively final bond obligations, has been stayed or
enjoined by a court of competent jurisdiction.
Sec. Sec. 223.18 through 223.20 [Removed]
12. Remove Sec. Sec. 223.18, 223.19, and 223.20.
Sec. 223.17 [Redesignated as Sec. 223.18]
13. Redesignate Sec. 223.17 as Sec. 223.18.
14. Revise newly redesignated Sec. 223.18 to read as follows:
Sec. 223.18 Revocation.
(a) A certified surety's certificate of authority granting the
surety the opportunity to present its bonds for approval to an agency
bond-approving official, i.e., the surety's listing on Department
Circular 570, can be revoked by Treasury in two ways:
(1) Treasury, of its own accord, under Sec. 223.19, may initiate
revocation proceedings against the surety when it has reason to believe
that a company is not complying with 31 U.S.C. 9304-9308 and/or the
regulations under this part, or
(2) Treasury, under Sec. 223.20, may initiate revocation
proceedings against the surety upon receipt of a complaint from an
agency that the surety has not paid or satisfied an administratively
final bond obligation due the agency.
(b) A revocation of a surety's certificate of authority under Sec.
223.19 or Sec. 223.20 precludes the surety from underwriting or
reinsuring additional bonds for any agency, and therefore revokes the
surety's opportunity to have its bonds presented to any agency bond-
approving official for acceptance.
15. Add new Sec. 223.19 to read as follows:
Sec. 223.19 Treasury initiated revocation proceedings.
Whenever Treasury has reason to believe that a surety is not
complying with the requirements of 31 U.S.C. 9304-9308 and/or the
regulations in this part, including but not limited to a failure to
satisfy corporate and financial standards, Treasury shall:
(a) Notify the company of the facts or conduct which indicate such
failure, and provide opportunity to the company to respond, and
(b) Revoke a company's certificate of authority with advice to it
if:
(1) The company does not respond satisfactorily to its notification
of noncompliance, or
(2) The company, provided an opportunity to demonstrate or achieve
compliance, fails to do so.
16. Add new Sec. 223.20 to read as follows:
Sec. 223.20 Revocation proceedings initiated by Treasury upon receipt
of an agency complaint.
(a) Agency Complaint. If an agency determines that a surety has not
promptly made full payment or fully satisfied an administratively final
bond obligation naming the agency as obligee, the head of the agency,
or his or her designee, may submit a complaint to the Assistant
Commissioner, Management, or incumbent Treasury executive, requesting
that the surety's certificate of
[[Page 14599]]
authority be revoked for nonperformance of administratively final bond
obligations. Under such complaint, the agency shall certify that:
(1) The agency has made a determination, in accordance with
applicable agency procedures and standards, that a surety owes on a
bond obligation naming the agency as obligee;
(2) The agency has submitted a written demand on behalf of the
agency to the surety requesting payment or satisfaction on the bond
obligation;
(3) The surety was afforded the opportunity to request
administrative review within the agency of the determination that the
bond obligation was due, and the agency made a final administrative
determination that the bond obligation was due after the completion of
such administrative review, or the time period for the surety to
request administrative review within the agency has expired, i.e., the
bond obligation is administratively final;
(4) The agency provided the surety the opportunity to enter into a
written agreement to satisfy the obligation;
(5) The surety has not made full payment or fully satisfied the
obligation, and the obligation is past due; and
(6) The surety's obligation to make payment or satisfy the
obligation has not been stayed or enjoined by a court of competent
jurisdiction conducting judicial review of such obligation.
(b) Documentation of Complaint. The agency shall include in its
complaint a copy of the bond, written notice of the bond claim,
pertinent administrative agency decisions supporting the final agency
determination that a bond obligation is due, a copy of a written demand
letter supporting the determination that payment of the bond obligation
is past due, and documentation indicating the surety was afforded the
opportunity to enter into a written agreement to satisfy the bond
obligation.
(c) Notice to Surety. On receipt of a complaint meeting the
requirements of paragraphs (a) and (b) of this section, Treasury will
notify the surety that its certificate of authority to write additional
bonds for any agency will be revoked in the absence of a satisfactory
explanation. The notice will require the surety to submit a written
explanatory response to Treasury within 20 business days. The notice
will advise the surety of the facts and conduct referenced in the
complaint. The notice will afford the company the opportunity to
demonstrate its qualifications to retain its certificate of authority.
(d) Reviewing Official and Deciding Official. The Assistant
Commissioner, Management, or incumbent Treasury executive, will appoint
a Reviewing Official to conduct a paper review of the Federal agency
complaint referenced in paragraphs (a) and (b) of this section, and the
surety response referenced in paragraph (c) of this section, to
determine whether revocation of the surety's certificate of authority
is warranted. The Reviewing Official is authorized to require the
submission of additional documentation from the complaining agency and
the surety, to ensure appropriate consideration of relevant factual or
legal issues. Upon completion of such review, the Reviewing Official
shall prepare a written Recommendation Memorandum addressed to the
Assistant Commissioner, Management, or incumbent Treasury executive,
setting forth findings and a recommended disposition. The Assistant
Commissioner, Management, or incumbent Treasury executive with
executive oversight of the Treasury surety program, will be the
Deciding Official who will make the final decision whether the surety's
certificate of authority to write and reinsure bonds should be revoked
based on the administrative record. For these purposes, the
administrative record consists of the agency complaint referenced in
paragraphs (a) and (b) of this section, the surety response referenced
in paragraph (c) of this section, any other documentation submitted to,
or considered by, the Reviewing Official, and the Reviewing Official's
Recommendation Memorandum.
(e) Final Decision. (1) If the Deciding Official's final decision
is that revocation is not warranted, the surety and the agency will be
notified of the basis of this decision and the complaint against the
surety will be dismissed.
(2) If the Deciding Official's final decision is that the surety's
certificate of authority shall be revoked, the Deciding Official will
notify the surety and the agency of the revocation decision and the
basis for such decision. Except as provided in paragraph (g) of this
section, the notice will afford the surety an opportunity to
demonstrate or achieve compliance, i.e., cure its noncompliance, by
satisfying the bond obligations forming the basis of the final decision
within 20 business days. If the surety cures its noncompliance within
20 business days, the complaint against the surety will be deemed moot
and the surety will retain its certificate of authority to write
Federal bonds. If the surety does not cure its noncompliance within 20
business days, the surety's certificate of authority shall be revoked
by Treasury without further notice.
(f) Standard of Review. (1) In reviewing whether the revocation of
the surety's certificate of authority is warranted under this section,
the Reviewing Official and the Deciding Official will determine whether
the agency's administratively final decision that the surety owes a
past-due bond obligation:
(i) Was reasonable;
(ii) Was based on a consideration of relevant factors; and
(iii) Did not involve a clear error of judgment.
(2) The Reviewing Official and the Deciding Official will not
conduct a de novo review of the agency determination, and will not
substitute their judgment for that of the agency.
(g) Consideration of Willful Conduct. The surety is not entitled to
an opportunity to demonstrate or achieve compliance, i.e., cure its
noncompliance, if its conduct in failing to carry out its contracts is
willful. For purposes of this regulation, ``willful'' means a careless
or reckless disregard of a known legal obligation to satisfy a past due
bond obligation. In considering whether a surety's conduct is willful,
the Deciding Official may consider whether:
(1) An agency has filed a prior complaint with Treasury requesting
that the surety's certificate be revoked for a substantially similar
past-due bond obligation;
(2) The surety asserted substantially similar defenses to such bond
obligation;
(3) Such defenses were considered by the agency under pertinent
authorities and dismissed;
(4) Treasury made a final decision that revocation of the surety's
certificate was justified; and
(5) Other pertinent factors.
(h) Informal Hearing. (1) If a surety that is the subject of a
paragraphs (a) and (b) of this section complaint believes the
opportunity to make known its views, as provided for under Sec.
paragraph (c) of this section, is inadequate, it may, within 20
business days of the date of the notice required by paragraph (c),
request, in writing, that an informal hearing be convened.
(2) As soon as possible after a written request for an informal
hearing is received, the Reviewing Official shall convene an informal
hearing, at such time and place as he or she deems appropriate, for the
purpose of determining whether the surety's certificate of authority
should be revoked.
(3) The surety shall be advised, in writing, of the time and place
of the informal hearing and shall be directed
[[Page 14600]]
to bring all documents, records and other information as it may find
necessary and relevant to support its position.
(4) The surety may be represented by counsel and shall have a fair
opportunity to present any relevant material and to examine the
administrative record.
(5) The complaining agency may be requested by the Reviewing
Official to send a representative to the hearing to present any
relevant material, and the agency representative may examine the
administrative record.
(6) Formal rules of evidence will not apply at the informal
hearing.
(7) The formal adjudication standards under the Administrative
Procedures Act, 5 U.S.C. 554, 556, 557 do not apply to the informal
hearing or adjudication process.
(8) Treasury may promulgate additional procedural guidance
governing the conduct of informal hearings. This additional procedural
guidance may be contained in the Annual Letter to Executive Heads of
Surety Companies referenced in 31 CFR 223.9, the Treasury Financial
Manual, or other Treasury publication or correspondence.
(9) Upon completion of the informal hearing, the Reviewing Official
shall prepare a written Recommendation Memorandum addressed to the
Assistant Commissioner, Management, or incumbent Treasury executive,
setting forth findings and a recommended disposition. The Assistant
Commissioner, Management, or incumbent Treasury executive, will be the
Deciding Official who will make the final decision whether the surety's
certificate of authority to write and reinsure Federal bonds should be
revoked based on the administrative record. For these purposes, the
administrative record consists of the Federal agency complaint
referenced in paragraphs (a) and (b) of this section, the surety
response referenced in paragraph (c), any other documentation submitted
to, or considered by, or entered into the administrative record by the
Reviewing Official, the hearing transcript, and the Reviewing
Official's Recommendation Memorandum.
(10) The provisions of paragraphs (e), (f), and (g) of this section
shall apply to the adjudication of the agency complaint when an
informal hearing is conducted.
17. Revise Sec. 223.21 to read as follows:
Sec. 223.21 Reinstatement.
If, after one year from the date of the expiration or the
revocation of its certificate of authority under this part, a company
can demonstrate that the basis for the non-renewal or revocation has
been eliminated or effectively cured, as determined by Treasury in its
discretion, and that it can comply with, and does meet, all continuing
requirements for certification under 31 U.S.C. 9304-9308 and this part,
the company may submit an application to Treasury for reinstatement or
reissuance of a certificate of authority, which will be granted without
prejudice, provided all such requirements are met.
18. In Sec. 223.22, revise paragraph (c) to read as follows:
Sec. 223.22 Fees for services of the Treasury Department.
* * * * *
(c) Specific fee information may be obtained from the Assistant
Commissioner, Management, or incumbent Treasury executive, or online at
https://www.fms.treas.gov/c570. In addition, a notice of the amount of a
fee referred to in paragraphs (a)(1) through (4) of this section will
be published in the Federal Register as each change in such fee is
made.
Dated: March 11, 2011.
Richard L. Gregg,
Fiscal Assistant Secretary.
[FR Doc. 2011-6277 Filed 3-16-11; 8:45 am]
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