[Federal Register Volume 60, Number 166 (Monday, August 28, 1995)]
[Rules and Regulations]
[Pages 44706-44709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21299]




[[Page 44705]]

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Part IX





Office of Government Ethics





_______________________________________________________________________



5 CFR Part 2640



Certain Miscellaneous Exemptions Under 18 U.S.C. 208(b)(2); Acts 
Affecting a Personal Financial Interest; Interim Rule

  Federal Register / Vol. 60, No. 166 / Monday, August 28, 1995 / Rules 
and Regulations   

[[Page 44706]]


OFFICE OF GOVERNMENT ETHICS

5 CFR Part 2640

RIN 3209-AA09


Certain Miscellaneous Exemptions Under 18 U.S.C. 208(b)(2) (Acts 
Affecting a Personal Financial Interest)

AGENCY: Office of Government Ethics (OGE).

ACTION: Interim rule with request for comments.

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SUMMARY: The Office of Government Ethics (OGE) is issuing an interim 
regulation describing the circumstances under which certain financial 
interests arising from Federal Government employment in the executive 
branch are exempt from the prohibition in 18 U.S.C. 208(a). Section 
208(a) generally prohibits employees of the executive branch from 
participating in an official capacity in particular matters in which 
they have a financial interest. It also bars employees from acting in 
particular matters in which certain other persons or entities, which 
are specified in the statute, have a financial interest. Section 
208(b)(2) of title 18 permits the Office of Government Ethics to 
promulgate executive branch-wide regulations describing financial 
interests that are too remote or inconsequential to warrant 
disqualification pursuant to section 208(a). This interim regulation 
exempts, in certain circumstances, disqualifying financial interests 
that an employee may have in Federal salary and benefits, or in Social 
Security or veterans' benefits.

DATES: This interim regulation is effective August 28, 1995 Comments by 
agencies and the public are invited and are due by October 27, 1995.

ADDRESSES: Office of Government Ethics, suite 500, 1201 New York Avenue 
NW., Washington, DC 20005-3917. Attention: Ms. Glynn.

FOR FURTHER INFORMATION CONTACT: Marilyn Glynn, Office of Government 
Ethics, telephone 202-523-5757, FAX 202-523-6325.

SUPPLEMENTARY INFORMATION: Section 208(a) of title 18 of the United 
States Code prohibits Government employees from participating in an 
official capacity in particular Government matters in which, to their 
knowledge, they or certain other persons specified in the statute have 
a financial interest, if the matter would have a direct and predictable 
effect on the financial interest. Section 208(d)(2) directs the Office 
of Government Ethics, after consultation with the Attorney General, to 
adopt uniform regulations exempting financial interests from the 
applicability of section 208(a) for all or a portion of the executive 
branch if it determines that such interests are either too remote or 
too inconsequential to affect an employee's services to the Government. 
Further, section 201(c) of Executive Order 12674, as modified by E.O. 
12731, states that OGE is to obtain the concurrence of the Department 
of Justice for any section 208 regulations it promulgates. The Office 
of Government Ethics has obtained that concurrence for this interim 
rule. Finally, as provided in section 402 of the Ethics in Government 
Act of 1978, as amended, 5 U.S.C. appendix, OGE has consulted with the 
Office of Personnel Management on this interim rule.
    The Office of Government Ethics will soon be issuing in the Federal 
Register a proposed regulation describing a variety of holdings or 
relationships that OGE has determined are either too remote or too 
inconsequential in value to be likely to affect an employee's 
consideration of any particular matter. That proposed regulation will 
also contain a more detailed analysis of section 208, and guidance on 
individual waivers of disqualifying financial interests that agencies 
may grant under 208 (b)(1) and (b)(3). The text of this interim 
regulation will be included in the appropriate place in the overall 
proposed section 208 regulation.
    This interim regulation exempts disqualifying financial interests 
that arise from employment in the executive branch of the Federal 
Government. With certain exceptions, the regulation specifically 
exempts an employee's interest in his Government salary and benefits, 
and his interest in Social Security and veterans' benefits. It also 
exempts, with certain exceptions, the disqualifying financial interests 
that arise from the Federal Government employment interests of an 
employee's spouse, minor child, general partner, or anyone with whom he 
is negotiating or has an arrangement for prospective employment. As 
noted, it is anticipated that the exemption for salary and benefits in 
this interim regulation will be added to the larger group of exemptions 
that will be published as a proposed regulation, as described above.

I. Background

    The question of whether an executive branch employee may have a 
disqualifying financial interest in his Government salary and benefits 
has been addressed a number of times, but has never been definitively 
resolved. An opinion issued by the Office of Legal Counsel (OLC) of the 
Department of Justice in 1993 concluded that section 208 did not apply 
to payments made to employees under section 7 of the Technology 
Transfer Act, 15 U.S.C. 1501-1534, because such payments ``are 
indistinguishable for these purposes from salary, benefits, and other 
payments such as performance awards.'' Memorandum for Stephen D. Potts, 
Director, Office of Government Ethics, from Walter Dellinger, Acting 
Assistant Attorney General, Office of Legal Counsel, Re: Ethics Issues 
Related to the Federal Technology Transfer Act of 1986 (September 13, 
1993). The opinion stated that section 208 was intended to cover only 
``outside'' financial interests and therefore would not bar an employee 
from participating in matters that would affect his Government 
compensation.\1\ A copy of this OLC memorandum is available from OGE 
(see the FOR FURTHER INFORMATION CONTACT block above).

    \1\ In 1980, OLC also concluded that section 208 was 
inapplicable to financial interests which arise from Government 
employment and salary, where no outside financial interest was 
implicated. See Memorandum for Thomas Martin, Deputy Assistant 
Attorney General, Civil Division, from Leon Ulman, Deputy Assistant 
Attorney General, Office of Legal Counsel, Re: 18 U.S.C. Sec. 208 
and Pending Salary Adjustment Litigation (January 24, 1980). 
Subsequently, however, OLC questioned the correctness of the 1980 
opinion in two other opinions dealing with section 208. See 
Memorandum for Richard K. Willard, Assistant Attorney General, Civil 
Division, from Charles J. Cooper, Assistant Attorney General, Office 
of Legal Counsel, Re: 18 U.S.C. Sec. 208 and Participation of 
Departmental Attorneys in Debt Ceiling Litigation p. 2 at n.1 
(December 6, 1985); Memorandum for the Solicitor of the Interior, 
from Samuel A. Alito, Deputy Assistant Attorney General, Office of 
Legal Counsel, Re: Scope of the Term ``Particular Matter'' under 18 
U.S.C. Sec. 208 p. 9 at n.13 (January 12, 1987). Copies of all of 
these memoranda also are available from OGE.
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    The notion that section 208 applies only to so-called ``outside'' 
financial interests has some support in the statute's legislative 
history. In 1962, section 208 replaced 18 U.S.C. 434 which barred 
employees from acting in an official capacity in the transaction of 
business with any business entity in which they were ``directly or 
indirectly interested in the pecuniary profits or contracts.'' The 
Senate Report on the bill that became section 208 described the 
provision as follows:

    The disqualification of the subsection embraces any 
participation on behalf of the Government in a matter in which the 
employee has an outside financial interest, even though his 
participation does not involve the transaction of business.

S. Rep. No. 2213, 87th Cong., 2d Sess. 12 (1962).

    Practical considerations might also favor interpreting section 208 
to conclude that an employee does not have a disqualifying financial 
interest in 

[[Page 44707]]
his Government position and salary. Otherwise, an employee's routine 
performance of duties might be viewed as creating a disqualifying 
financial interest. For example, it may be argued that every time an 
employee strives to enthusiastically and conscientiously perform his 
duties, he increases the likelihood that he will receive a favorable 
performance rating and a subsequent bonus. Similarly, simply asking for 
a promotion or submitting an official request for travel reimbursement 
might be considered participating in a particular matter that would 
have a direct and predictable effect on the employee's financial 
interest.
    On the other hand, it is arguable that since section 208 was 
intended to cover a broader range of activities than section 434,\2\ it 
plainly encompasses actions affecting financial interests arising from 
Government employment. In United States v. Lund, 853 F.2d 242 (4th Cir. 
1988), the court found that section 208 barred an employee from acting 
in matters affecting his spouse's Government employment interests.\3\ 
The court noted that

    \2\ Unlike prior section 434, section 208 is applicable to 
matters that would affect the interests of an employee's spouse, 
minor child, general partner, and certain other persons or 
organizations with which the employee has a specified relationship. 
It also applies to a wider scope of Government activities than 
simply those that amount to the ``the transaction of business.'' 
Instead, it applies to applications, contracts, judicial proceedings 
and other similar particular matters.
    \3\ In Lund, the employee secretly married a suboradinate and 
subsequently promoted her to another position, granted her pay 
increases, and recommended that the Government pay her tuition for a 
masters' degree program. The court's determination that section 208 
applies to internal personnel matters may have been influenced by 
the fact that the marriage was concealed from agency officials.
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the language of section 208(a), unlike that of its predecessor, is 
not restricted to conflicts of interest in matters involving outside 
entities, and nothing in the legislative history reveals a 
congressional intent to limit that broad language to less than its 
normal span. To the contrary, the legislative history indicates that 
Congress was fully aware of the potential breadth of the new statute 
* * * [t]hat the legislative history contains no specific mention of 
conflicts of interest in internal personnel matters cannot be taken 
as affirmative evidence that it did not intend the statute's 
sweeping language to reach them * * *.

Id. at 246.

    Moreover, it is not difficult to envision examples of employee 
participation in matters relating to salary and benefits that would 
clearly appear to amount to a conflict of interest under section 208. 
For example, no one seriously doubts that it would be improper for an 
employee to participate in Government matters that have a unique or 
individual impact on the employee's own salary or benefits, such as 
approving his own promotion or awarding himself a cash bonus for 
superior performance. It is generally acknowledged that it would be 
similarly inappropriate for an employee to approve his general 
partner's pay increase or performance bonus.

II. Need for Exemption

    In light of the somewhat differing interpretations of section 208 
that have been advanced, and in order to resolve continuing questions 
about the applicability of section 208 to Federal salary and benefits, 
the Office of Government Ethics, in consultation with and with the 
concurrence of the Department of Justice, has decided to treat 
financial interests that arise from Government salary and employment as 
disqualifying under section 208(a). This regulation, however, would 
exempt most of those financial interests from the disqualification 
provision of section 208(a).
    Given the ambiguous nature of existing advice on and 
interpretations of section 208, OGE's decision to publish this 
exemption should not be construed as an indication that any particular 
activity in which an employee might have engaged prior to publication 
of this regulation was a violation of section 208. The exemption simply 
provides employees with reassurance that performance of the duties 
required by their positions does not amount to a violation of section 
208. Additionally, the exemption and the illustrative examples describe 
the types of activities that are not covered by the exemption, and in 
which the employee may not engage in the absence of an individual 
waiver under section 208 (b)(1) or (b)(3).
    The need for the exemption is particularly important at this time 
because a number of executive branch Departments and agencies are 
engaged in ``reinvention'' or ``privatization'' activities that will 
result in the elimination of Federal positions. In some cases, employee 
involvement in these activities necessarily will affect financial 
interests arising from Government salary and benefits. However, the 
exemption will permit an employee to engage in many of these 
activities, with certain limited exceptions described below.

III. Exemption for Interests Arising From Government Salary and 
Benefits or From Social Security or Veterans' Benefits
    Section 2640.101 applies to executive branch employees whose 
activities affect Government salary or benefits, or veterans' or Social 
Security benefits. With two exceptions, the provision exempts all 
disqualifying financial interests that arise from Federal salary or 
benefits, or from Social Security or veterans' benefits. The exemption 
does not permit an employee to make (1) determinations that 
individually or specially affect his own financial interest in 
Government salary and benefits, or (2) determinations, requests, or 
recommendations that individually or specially relate to, or affect the 
Government employment-related financial interests of any other person 
specified in section 208, such as the employee's spouse, minor child, 
or general partner.
    To the extent that the performance of everyday duties affects an 
employee's potential for promotion, for receiving a bonus or other 
similar benefit having monetary value, or even for being removed 
involuntarily from Federal service, the exemption at Sec. 2640.101 
applies to all employees. It also applies to employees who 
affirmatively ask for action on, or otherwise make requests or 
recommendations about, their own salary and benefits. The exemption 
would permit employees, for example, to ask for pay raises and 
promotions, for transfers to higher-paid positions, and for 
reimbursement of travel expenses. The exemption applies to employee 
participation in matters that would affect a panoply of interests that 
derive from Government employment, such as salary, premium pay, 
performance bonuses, recruitment and relocation payments, Technology 
Transfer Act payments, leave, compensatory time, pensions, health and 
life insurance, buyouts and early outs, payment of the costs of 
training or continuing education, disability payments, housing 
allowances, severance pay, unemployment compensation, authorized 
personal use of agency equipment, and Government day care facility 
expenses. The exemption does not permit employees to make 
determinations, such as approvals or disapprovals, that would have an 
individual or special effect on their financial interests. Thus, while 
an employee could request that his agency pay the cost of his tuition 
at a local university, the employee could not approve his own request. 

[[Page 44708]]

    The exemption does allow an employee to make a determination (as 
well as a request or recommendation) affecting his own financial 
interest (or that of anyone else specified in section 208), as long as 
that interest is not affected in an individual or special way. This 
aspect of the exemption has particular applicability to employees who 
administer employee benefit plans for their own agency, or for the 
executive branch as a whole. The responsibilities of these employees, 
of course, affect their own interests to the extent that they affect 
the interests of all employees. The exemption permits them to continue 
to perform their functions, provided the matters in which they act are 
not ones in which they, or any other person specified in section 208, 
have an individual or special interest. For example, the exemption 
permits employees of the Federal Retirement Thrift Investment Board to 
promulgate less stringent standards for borrowing from thrift accounts, 
even though the employees may participate in the thrift savings plan 
themselves and may borrow from their accounts. Similarly, the exemption 
permits an employee of the Federal Reserve (the ``Fed'') who 
participates in the Fed pension plan to administer the plan within the 
Fed.
    The exemption also permits an employee whose agency is involved in 
``privatization'' or ``reinvention'' activities to participate in 
certain of those activities even when his own position, salary, or 
benefits might be affected. As the provision specifies, an employee may 
participate in such activities provided that he does not make any 
determination that has a special or individual effect on his salary and 
benefits. Thus, for example, an employee could serve on an agency task 
force that makes a recommendation to the agency head to eliminate the 
agency component to which he is assigned. In the absence of an 
individual waiver under section 208(b)(1) or (b)(3), however, the 
employee could not be responsible for deciding which of two senior 
positions in the component should be eliminated--his own or that of 
another senior employee. If the matter would have a direct and 
predictable effect on the salary and benefits of a very small number of 
employees, including that of the employee charged with the 
responsibility to act, the employee should not participate without 
first receiving an individual waiver.
    Moreover, matters that would affect an ``outside'' interest of the 
employee, such as his interest in obtaining a position with a 
contractor who will be taking over a ``privatized'' Government 
function, are not governed by this exemption. For example, where an 
agency has decided to transfer certain agency functions to an employee-
owned (or ESOP) corporation, an employee whose position will be 
transferred to the new corporation could not, absent an individual 
waiver, participate on an agency task force advising the independent 
trustee who is charged with creating the ESOP corporation. The new 
position is not a financial interest that arises from Federal salary or 
benefits. However, an employee who evidences her intent to retire from 
the Government when the agency function is transferred to the ESOP 
corporation may participate in task force activities since she has no 
financial interest in a new position in the new corporation.
    The exemption does not permit an employee to make requests or 
recommendations, as well as determinations, in matters that would have 
an individual or special effect on the financial interests of anyone 
else specified in section 208.\4\ See Sec. 2640.101(b). For example, 
this exemption does not permit an employee to recommend that his spouse 
receive an award for meritorious service. Nor does it permit an 
employee to determine that his general partner should receive 
compensatory time for work performed in excess of the normal tour of 
duty. The Office of Government Ethics believes that it would be 
inappropriate to exempt recommendations and requests (as well as 
determinations) in matters that would specifically affect the financial 
interests of other persons specified in section 208. The narrower 
exemption for matters affecting a person other than an employee 
specified in section 208 is warranted because the employee's 
relationship with that other person might not be generally known, and 
the employee's impartiality in such matters reasonably might be 
questioned. Making a request or recommendation in a matter affecting 
one's own position is on a different footing since the employee's 
potential bias is readily recognizable.

    \4\ Of course, because only individual persons may become 
Government employees, the exemption has no relevance to matters 
affecting organizations the employee serves as officer, director, 
trustee, general partner, or employee, or those with which he is 
negotiating or has an arrangement for prospective employment. The 
persons specified in section 208 that are relevant for purposes of 
this exemption include the employee's spouse, minor child, general 
partner, or individual person with whom the employee is negotiating 
or has an arrangement for prospective employment, or for whom he 
serves as an employee in a position outside the Government.
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    Within the limitations specified in Sec. 2640.101 (a) and (b), the 
provision also permits employees whose duties concern Social Security 
and veterans' benefits to participate in matters affecting those 
benefits. Accordingly, an employee at the Social Security 
Administration could recommend and approve changes to certain 
procedures for applying for Social Security benefits even though her 
spouse is an applicant for benefits.\5\ However, the exemption would 
not permit her to approve her spouse's application for benefits. The 
exemption also would not permit an employee to take an action in 
violation of some other statutory or regulatory provision such as the 
prohibitions on nepotism in 5 U.S.C. 3110.

    \5\ As indicated in the Standards of Ethical Conduct for 
Employees of the Executive Branch at 5 C.F.R. 2635.402(b)(3), not 
all Government matters are sufficiently focused on the interests of 
a discrete and identifiable class of persons that they can be 
considered ``particular matters'' within the meaning of section 208. 
Example one accompanying Sec. 2635.402(b)(3) makes clear that 
certain Social Security procedures are not ``particular matters.'' 
This exemption applies to those Social Security matters that are 
focused on the interests of a discrete and identifiable class of 
persons, and therefore are considered ``particular matters'' for 
purposes of section 208.
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IV. Matters of Regulatory Procedure

Administrative Procedure Act

    Pursuant to 5 C.F.R. 553 (b) and (d), I find that good cause exists 
for waiving the general requirements of notice of proposed rulemaking 
and 30-day delayed effective date for this interim rule. These 
requirements are being waived because this regulation grants certain 
exemptions under the applicable conflict of interest law, 18 U.S.C. 
208. Moreover, it is in the public interest that this regulation take 
effect as soon as possible in order to clarify the permissible limits 
of employees' official actions when certain of their financial 
interests may be affected. Interested persons are invited to submit 
written comments to OGE on this interim regulation, to be received on 
or before October 27, 1995. The Office of Government Ethics will review 
all comments received and consider any modifications to this rule which 
appear warranted. This same provision will also be part of the overall 
proposed section 208 regulation which OGE will publish in a separate 
rulemaking document.

Executive Order 12866

    In promulgating this proposed regulation, the Office of Government 
Ethics has adhered to the regulatory philosophy and the applicable 
principles of regulation set forth in section 1 of Executive Order 
12866, Regulatory Planning and Review. This interim rule has also been 
reviewed by 

[[Page 44709]]
the Office of Management and Budget under that Executive order.

Regulatory Flexibility Act

    As Director of the Office of Government Ethics, I certify under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) that this interim 
regulation will not have a significant economic impact on a substantial 
number of small entities because it primarily affects Federal 
employees.

Paperwork Reduction Act
    The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply 
because this interim regulation does not contain information collection 
requirements that require the approval of the Office of Management and 
Budget.

List of Subjects in 5 CFR Part 2640

    Conflict of interests, Government employees.

    Approved: July 21, 1995.
Donald E. Campbell,
Deputy Director, Office of Government Ethics.

    Accordingly, for the reasons set forth in the preamble, the Office 
of Government Ethics is amending title 5, chapter XVI, subchapter B of 
the Code of Federal Regulations by adding a new part 2640 to read as 
follows:

PART 2640--MISCELLANEOUS EXEMPTIONS UNDER 18 U.S.C. 208(b)(2) (ACTS 
AFFECTING A PERSONAL FINANCIAL INTEREST)


Sec. 2640.101  Exemptions for financial interests arising from Federal 
Government employment or from Social Security or veterans' benefits.

    An employee may participate in any particular matter, whether of 
general applicability or involving specific parties, where the 
disqualifying financial interest arises from Federal Government salary 
or benefits, or from Social Security or veterans' benefits, except an 
employee may not:
    (a) Make determinations that individually or specially affect his 
own Government salary and benefits, or Social Security or veterans' 
benefits; or
    (b) Make determinations, requests, or recommendations that 
individually or specially relate to, or affect, the Government salary 
or benefits, or Social Security or veterans' benefits of any other 
person specified in section 208.

    Note: This exemption does not permit an employee to take any 
action in violation of any other statutory or regulatory 
requirement, such as the prohibition on the employment of relatives 
at 5 U.S.C. 3110.

    Example 1: An employee of the Office of Management and Budget 
may vigorously and energetically perform the duties of his position 
even though his outstanding performance would result in a 
performance bonus or other similar merit award.
    Example 2: A policy analyst at the Defense Intelligence Agency 
may request promotion to another grade or salary level. However, the 
analyst may not recommend or approve the promotion of her general 
partner to the next grade.
    Example 3: An engineer employed by the National Science 
Foundation may request that his agency pay the registration fees and 
appropriate travel expenses required for him to attend a conference 
sponsored by the Engineering Institute of America. However, the 
employee may not approve payment of his own travel expenses and 
registration fees.
    Example 4: A GS-14 attorney at the Department of Justice may 
review and make comments about the legal sufficiency of a bill to 
raise the pay level of all Federal employees paid under the General 
Schedule even though her own pay level, and that of her spouse who 
works at the Department of Labor, would be raised if the bill were 
to become law.
    Example 5: An employee of the Department of Veterans Affairs 
(VA) may assist in drafting a regulation that will provide expanded 
hospital benefits for veterans, even though he himself is a veteran 
who would be eligible for treatment in a hospital operated by the 
VA.
    Example 6: An employee of the Office of Personnel Management may 
participate in discussions with various health insurance providers 
to formulate the package of benefits that will be available to 
Federal employees who participate in the Government's Federal 
Employees Health Benefits Program, even though the employee will 
obtain health insurance from one of these providers through the 
program.
    Example 7: An employee of the Federal Supply Service Division of 
the General Services Administration (GSA) may participate in GSA's 
evaluation of the feasibility of privatizing the entire Federal 
Supply Service, even though the employee's own position would be 
eliminated if the Service were privatized.
    Example 8: Absent an individual waiver under section 208(b)(1), 
the employee in the preceding example could not participate in the 
implementation of a GSA plan to create an employee-owned private 
corporation which would carry out Federal Supply Service functions 
under contract with GSA. Because implementing the plan would result 
not only in the elimination of the employee's Federal position, but 
also in the creation of a new position in the new corporation to 
which the employee would be transferred, the employee would have a 
disqualifying financial interest in the matter arising from other 
than Federal salary and benefits, or Social Security or veterans' 
benefits.
    Example 9: A career member of the Senior Executive Service (SES) 
at the Internal Revenue Service (IRS) may serve on a performance 
review board that makes recommendations about the performance awards 
that will be awarded to other career SES employees at the IRS. The 
amount of the employee's own SES performance award would be affected 
by the board's recommendations because all SES awards are derived 
from the same limited pool of funds. However, the employee's 
activities on the board involve only recommendations, and not 
determinations that individually or specially affect his own award. 
Additionally, 5 U.S.C. 5384(c)(2) requires that a majority of the 
board's members be career SES employees.
    Example 10: In carrying out a reorganization of the Office of 
General Counsel (OGC) of the Federal Trade Commission, the Deputy 
General Counsel is asked to determine which of five Senior Executive 
Service (SES) positions in the OGC to abolish. Because her own 
position is one of the five SES positions being considered for 
elimination, the matter is one that would individually or specially 
affect her own salary and benefits and, therefore, the Deputy may 
not decide which position should be abolished.

    Authority: 5 U.S.C. App. (Ethics in Government Act of 1978); 18 
U.S.C. 208; E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 215, as 
modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 Comp., p. 306.

[FR Doc. 95-21299 Filed 8-25-95; 8:45 am]
BILLING CODE 6345-01-U