[Federal Register Volume 61, Number 147 (Tuesday, July 30, 1996)]
[Rules and Regulations]
[Pages 39756-39767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19173]



[[Page 39755]]


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Part III





Department of Health and Human Services





_______________________________________________________________________



Office of the Secretary



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5 CFR Chapter XLV



Supplemental Standards of Ethical Conduct for Employees; Final Rule

  Federal Register / Vol. 61, No. 147 / Tuesday, July 30, 1996 / Rules 
and Regulations  

[[Page 39756]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

5 CFR Chapter XLV

RIN 3209-AA15


Supplemental Standards of Ethical Conduct for Employees of the 
Department of Health and Human Services

AGENCY: Department of Health and Human and Services (HHS).

ACTION: Final rule.

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SUMMARY: The Department of Health and Human Services,with the 
concurrence of the Office of Government Ethics (OGE), is issuing 
regulations for officers and employees of HHS that supplement the OGE 
Standards of Ethical Conduct for Employees of the Executive Branch. 
This final rule specifies procedural and substantive requirements that 
are necessary to address ethical issues unique to the Department. The 
rule: Designates separate agency components for purposes of the gift 
rules and the teaching, speaking and writing restrictions; excepts from 
the gift rules, subject to monetary limits, arts and crafts items 
received from Indian tribes or Alaska-Native organizations; prohibits 
the holding or acquisition of certain financial interests by employees 
of the Food and Drug Administration (FDA); exempts otherwise 
disqualifying financial interests derived from Indian or Alaska Native 
birthrights; prohibits certain outside employment and other outside 
activities; establishes HHS-wide prior approval requirements for 
outside employment and other outside activities, with additional rules 
applicable to FDA employees; authorizes certain compensated teaching, 
speaking and writing activities engaged in by special Government 
employees in the Public Health Service (PHS); and delineates 
restrictions on concurrent representation of tribal organizations.

EFFECTIVE DATE: July 30, 1996.

FOR FURTHER INFORMATION CONTACT:
Edgar M. Swindell, Assistant Special Counsel for Ethics, or Richard M. 
Thomas, Assistant Special Counsel for Ethics (FDA sections), Office of 
the General Counsel, Ethics Division, telephone (202) 690-7258, fax 
(202) 690-5452.

SUPPLEMENTARY INFORMATION:

I. Background

    On August 7, 1992, the Office of Government Ethics published 
Standards of Ethical Conduct for Employees of the Executive Branch (OGE 
Standards), codified at 5 CFR part 2635. See 57 FR 35006-35067, as 
corrected at 57 FR 48557 and 52583 and 60 FR 51667, with additional 
grace period extensions at 59 FR 4779-4780, 60 FR 6939-6391 and 66857-
66858. Effective February 3, 1993, the OGE Standards established 
uniform rules applicable to all executive branch personnel.
    Pursuant to 5 CFR 2635.105, executive branch agencies are 
authorized to publish, with the concurrence of OGE, supplemental 
regulations deemed necessary to implement their respective ethics 
programs. The Department and OGE have determined that the following 
supplemental regulations, which are being issued in a new chapter XLV, 
consisting of part 5501, of 5 CFR, are necessary to establish certain 
prior approval procedures, and to address gifts, financial holdings, 
outside employment and other outside activities, and other ethics 
issues arising out of the unique programs and operations of the 
Department.
    In a separate rulemaking (which will have an effective date that is 
the same as the date of publication of this supplemental regulation), 
the Department, after consultation with OGE, will remove those 
provisions in its existing agency standards of conduct regulations at 
45 CFR part 73 and 73a that have been superseded by the OGE Standards 
of Ethical Conduct, the OGE financial disclosure regulations at 5 CFR 
part 2634, and this final rule. The Department will then add a cross-
reference to the OGE rules, as supplemented. Those portions of the HHS 
and FDA regulations regarding conduct that remain will preserve 
employee obligations unrelated to those subjects assigned to OGE for 
rulemaking and implementation, such as the political activity 
restrictions for uniformed service officers in the Public Health 
Service Commissioned Corps, the rules governing conduct on Federal 
property, and the standards for workplace courtesy, cooperation, and 
avoidance of sexual harassment.

II. Analysis of the Regulations

Section 5501.101  General

    This section states the purpose and scope of the part, incorporates 
the general definitions promulgated in the OGE Standards, and defines 
specific terms. The section specifies that the supplemental regulations 
apply to all officers and employees of HHS, including special 
Government employees (SGEs) and uniformed service officers in the 
Public Health Service Commissioned Corps on active duty.

Section 5501.102  Designation of HHS Components as Separate Agencies

    Section 2635.202(a) of the OGE Standards prohibits an employee from 
soliciting or accepting a gift offered by a prohibited source or given 
because of the employee's official position. A prohibited source is 
defined, in part, as a person who is regulated by, or has matters 
pending before, an employee's agency, as prescribed in 5 CFR 
2635.203(d). For the purpose of identifying an employee's agency, 
Sec. 2635.203(a) of the OGE Standards authorizes an executive 
department, by supplemental regulation, to designate as a separate 
agency any component of the department that exercises a distinct and 
separate function.
    Designations made pursuant to Sec. 2635.203(a) are used also to 
identify an employee's agency for purposes of applying the prohibition 
in 5 CFR 2635.807 on the receipt of compensation for teaching, speaking 
and writing that relates to an employee's official duties. In addition, 
under Sec. 5501.106(d) of this part, invitations to engage in outside 
employment or other outside activities tendered by prohibited sources 
of an employee's agency, as herein defined, are subject to a prior 
approval requirement.
    The Department has determined that each of the HHS components 
listed in Sec. 5501.102 exercises distinct and separate functions. 
Accordingly, Sec. 5501.102 designates the following operating divisions 
and components of HHS as separate agencies: (1) Administration on Aging 
(AOA); (2) Administration for Children and Families (ACF); (3) Agency 
for Health Care Policy and Research (AHCPR); (4) Agency for Toxic 
Substances and Disease Registry (ATSDR); (5) Centers for Disease 
Control and Prevention (CDC); (6) Food and Drug Administration (FDA); 
(7) Health Care Financing Administration (HCFA); (8) Health Resources 
and Services Administration (HRSA); (9) Indian Health Service (IHS); 
(10) National Institutes of Health (NIH); (11) Office of Consumer 
Affairs (OCA); (12) Program Support Center (PSC); and (13) Substance 
Abuse and Mental Health Services Administration (SAMHSA).
    As a result of these designations, employees of a designated 
component have to be concerned only with the prohibited sources of 
their respective components when assessing the propriety of a tendered 
gift or invitation to teach, speak, write, or engage in outside 
employment or other outside

[[Page 39757]]

activities. Employees of a component are defined to include, in 
addition to employees actually within a component, employees in a 
division or region of the Office of the General Counsel (OGE) that 
principally advise or represent that component.
    Any HHS employee not in one of the 13 components designated as 
separate agencies (including employees of the Office of the General 
Counsel with Department-wide responsibility) is deemed an employee of 
the remainder of HHS. These employees are treated as if no separate 
designations had been made, and, as a result, all prohibited sources of 
HHS are attributable to them.
    Under Sec. 5501.102, an employee of the Administration for Children 
and Families, for example, could receive an unsolicited gift from a 
hospital corporation receiving Medicare reimbursement through the 
Health Care Financial Administration, provided that the gift was not 
given because of the employee's official position. The hospital 
corporation would be a prohibited source of gifts as to all employees 
of HCFA, but likely would not be a prohibited source as to all 
employees of ACF or other designated agency components, unless that 
hospital corporation was also seeking official action from, were doing 
business with, were regulated by, or otherwise had a matter pending 
before that separate designated agency component.
    A hospital corporation receiving Federal funds, however, would be a 
prohibited source of gifts for all employees in the Office of the 
Assistant Secretary for Public Affairs because such employees are 
deemed part of the remainder of HHS and, as such, are charged with all 
prohibited sources of the Department. Employees of the Business and 
Administrative Law Division of the Office of the General Counsel, which 
has Department-wide responsibilities, would be treated similarly. 
However, employees of the Children, Families, and Aging Division of the 
Office of the General Counsel, which serves ACF and AOA, would receive 
the benefit of the separate agency designations.

Section 5501.103  Gifts from Federally Recognized Indian Tribes or 
Alaska Native Villages or Regional or Village Corporations

    Section 2635.204(k) of the OGE Standards permits employees to 
accept any gift that is specifically authorized by a supplemental 
agency regulation. The Office of Government Ethics is authorized by 5 
U.S.C. 7353(b)(1) to permit ``such reasonable exceptions as may be 
appropriate'' from the general ban on gifts to Federal employees given 
by prohibited sources or because of their official position. Section 
5501.103 permits HHS employees to accept unsolicited gifts of native 
artwork or crafts from federally recognized Indian tribes or Alaska 
Native villages or regional or village corporations valued up to and 
including $200 per source per calendar year. Such gifts may include 
art, jewelry, pottery, rugs, carvings, beadwork, and native dress.
    Indian tribes and Alaska Native villages often offer gifts of 
artwork and crafts as a matter of custom and tradition. Many employees 
throughout HHS, most notably in the Indian Health Service, the 
Administration for Native Americans within the Administration for 
Children and Families, the Centers for Disease Control and Prevention, 
and the Substance Abuse and Mental Health Services Administration, 
interact with Native Americans. Cognizant of the unique status of 
tribal organizations, this exception is intended to effectuate 
harmonious and respectful relations between HHS and the governing 
bodies of Indian tribes and Alaskan Native villages. The Department of 
the Interior concurs in this approach and plans to promulgate an 
identical provision for its employees.
    The $200 per source per year threshold is appropriate in light of 
the recognized value of handcrafted artwork. The figure reflects that 
tribal art on occasion may be expected to exceed the current $20 
maximum permitted by the gift rules, but is set low enough to exclude 
antiquities, collectibles, or similar items having a significant 
commercial value. Moreover, the $200 figure is consistent with the 
monetary threshold contained in Sec. 2635.204(d) of the OGE Standards 
relating to receipt of gifts for meritorious public service or 
achievement.
    This section does not authorize employees to accept such gifts from 
individual tribe or organization members. In addition, the limitations 
on the use of exceptions to the gift rules, contained in 5 CFR 2635.201 
through 2635.205, apply to this section. If the donor is a tribe or 
village that has interests that may be substantially affected by the 
performance or nonperformance of the recipient's official duties, the 
employee may accept the gifts authorized by this section only where 
there is a written finding by the agency designee that acceptance of 
the gift is in the agency's interest and will not violate any of the 
limitations on the use of exceptions contained in 5 CFR 2635.202(c). 
Gifts valued over $200 may be accepted on behalf of HHS, where 
appropriate, if authorized by applicable statutory gift acceptance 
authority, e.g., 42 U.S.C. 238.

Section 5501.104  Prohibited Financial Interests Applicable to 
Employees of the Food and Drug Administration and the Office of the 
Chief Counsel

    In 1972, the Department of Health, Education and Welfare, the 
predecessor of the Department of Health and Human Services, determined 
that, because the Food and Drug Administration ``is a unique consumer 
protection and regulatory agency within the Department,'' the 
Department's standards of conduct needed ``further supplementation to 
reflect this role.'' 37 FR 24347, 24348 (November 16, 1972). Therefore, 
the Department adopted additional activities and financial interests, 
applicable only to employees of FDA (and later to employees of the then 
Food and Drug Division of the Office of the General Counsel), codified 
at 45 CFR part 73a. The Department amended the FDA supplemental 
regulations in 1978, again ``to re-enforce public confidence in the 
integrity of decisions rendered by FDA employees.'' 43 FR 7618, 7619 
(February 24, 1978).
    Over two decades since the FDA supplemental regulations were first 
promulgated, the work of FDA still poses unique challenges for an 
agency ethics program. FDA employees participate in regulatory and 
product approval matters that substantially affect significant sectors 
of the United States economy, including the food, pharmaceutical, 
medical device, veterinary medicine, biotechnology, and cosmetics 
industries. Many FDA employees have access to confidential commercial 
information and trade secrets, the misuse of which can have serious 
financial consequences. Moreover, many FDA employees participate in, or 
have access to information about, pending enforcement matters, such as 
seizures, injunctive actions, and criminal investigations and 
prosecutions. Unethical conduct in this context, including misuse of 
information, could have serious public health consequences. In sum, FDA 
has a compelling need to monitor, and impose reasonable restrictions 
on, the financial and employment ties between FDA employees and the 
vast number of entities regulated by FDA. Such restrictions not only 
serve the interests identified above, but also relieve FDA of the 
significant administrative burden of resolving many conflict of 
interest problems on a case by case basis.
    Therefore, Sec. 5501.104 will preserve the substance of FDA's 
historic restrictions on the acquisition and holding of financial 
interests in

[[Page 39758]]

regulated organizations. (See the explanation of Sec. 5501.106(c)(3) 
and Sec. 5501.106(d)(2) for a discussion of the provisions governing 
outside employment of FDA employees.) Like FDA's prior financial 
interest restrictions, Sec. 5501.104 is narrowly tailored in two 
important respects:
    First, Sec. 5501.104, like the prior FDA rule, distinguishes 
between interests in organizations that are significantly regulated by 
FDA, and interests in organizations that are only incidentally 
regulated by FDA. Only interests in ``significantly regulated 
organizations'' are restricted. ``Significantly regulated 
organization'' is defined, at Sec. 5501.101(c)(2), to include any 
organization that derives ten percent or more of its annual gross sales 
from the sale of FDA-regulated products. The new rule adds a necessary 
modification to FDA's prior definition: companies that have no record 
of sales, but which are operating solely within a field regulated by 
FDA, also will be deemed to be ``significantly regulated.'' This 
modification is necessary to cover companies that are subject to 
significant regulation by FDA but which do not yet have any products on 
the market. The rule would cover, for example, start-up biotechnology 
companies that may exist for several years before obtaining FDA 
approval to market any product.
    Second, Sec. 5501.104, like the prior FDA rule, places the most 
strict limitations on employees whose duties carry the greatest 
potential for conflict of interest. In the past, FDA used various tests 
to determine which employees should be covered by the most strict 
prohibitions on financial interests. Compare 37 FR 24349 with 43 FR 
7621. Under Sec. 5501.104, the test is simplified: The most strict 
prohibition applies to those employees required to file either a public 
financial disclosure statement or a confidential financial disclosure 
statement, pursuant to 5 CFR part 2634. With certain exceptions, such 
employees are prohibited from holding or acquiring any interest in a 
significantly regulated organization. All other employees are allowed, 
pursuant to Sec. 5501.104(b)(2), to hold or acquire such interests, 
subject to essentially the same limitations contained in the prior FDA 
rule.
    Section 5501.104 excepts interests in certain investment and 
pension funds from the financial interest restrictions. To qualify for 
this exception, the fund must not be self-directed and must not have an 
express policy or practice of concentrating its investments in 
significantly regulated organizations. For example, a widely 
diversified mutual fund generally would be a permissible holding, even 
though the fund holds some stocks of significantly regulated 
organizations whereas a sector fund that focused on the pharmaceutical 
industry would not.
    The new rule also excepts pensions arising from employment with a 
significantly regulated organization. This exception does not appear in 
the prior FDA rule, but it does codify an FDA policy that has been in 
effect since 1976. The Food and Drug Administration has determined that 
such an exception is necessary to facilitate recruitment of qualified 
scientific and professional personnel, many of whom may have begun 
their careers in industry.
    Furthermore, Sec. 5501.104 provides FDA employees with the 
opportunity to request an individual exception in cases involving 
exceptional circumstances. Where the employee can demonstrate 
exceptional circumstances, FDA may grant an individual exception, 
provided that the application of the financial interest prohibition is 
not necessary to ensure public conference in the impartiality or 
objectivity with which FDA programs are administered or to avoid a 
violation of 5 CFR part 2635.
    Finally, consistent with prior FDA policy, the prohibition relating 
to financial interests would continue to apply to the spouses and minor 
children of FDA employees. FDA has made the determination, pursuant to 
5 CFR 2635.403(a), that there is a direct and appropriate nexus between 
this prohibition as applied to spouses and minor children and the 
efficiency of the service. It should be noted, however, that 
Sec. 5501.104 is not intended to prohibit employment by spouses and 
minor children in regulated industry, although any actual or apparent 
conflicts of interests created as to FDA employees by such employment 
must be resolved under other applicable provisions of 5 CFR part 2635.

Section 5501.105  Exemption For Otherwise Disqualifying Financial 
Interests Derived From Indian or Alaska Native Birthrights

    Section 208(a) of title 18 of the United States Code prohibits an 
employee of the executive branch from participating personally and 
substantially as a Government employee in any proceeding, application, 
request for a ruling or other determination, contract, claim, 
controversy, or other particular matter in which the employee, the 
employee's spouse, minor child, or organization in which the individual 
is employed, otherwise serving, or seeking other employment, has a 
financial interest.
    The Ethics Reform Act of 1989 amended 18 U.S.C. 208(b)(4) to 
provide that the conflict of interest prohibition does not apply to a 
financial interest resulting solely from the interest of the employee 
or the employee's spouse or minor child in birthrights in a federally 
recognized Indian tribe or Alaska Native village corporation, in an 
Indian allotment held in trust by the United States, or in an Indian 
claims fund held in trust or administered by the United States, if the 
particular matter does not involve the Indian allotment or claims fund 
or the Indian tribe or village corporation as a specific party or 
parties. Section 5501.105 incorporates the statutory exemption 
referenced in the OGE Standards at 5 CFR 2635.402(d).

Section 5501.106  Outside Employment and Other Outside Activities

    Section 5501.106 establishes supplemental regulations concerning 
the outside employment and other outside activities of HHS employees, 
other than special Government employees. The section covers both 
compensated and uncompensated activities and addresses traditional 
outside employment relationships, as well as other outside activities. 
The Department is authorized by Secs. 2635/802(a) and 2635.803 of the 
OGE Standards, respectively, to prohibit its employees from engaging in 
certain outside employment or other outside activities and to require 
prior approval before engaging in other defined outside employment or 
activities.
    (a) Applicability. The outside employment and activity prohibitions 
and the prior approval requirements imposed by paragraphs (c) and (d), 
respectively, do not apply to special Government employees. 
Nevertheless, special Government employees remain subject to other 
statutory and regulatory authorities governing their outside 
activities, including the criminal representation statutes, 18 U.S.C. 
203 and 205, and other applicable provisions of 5 CFR part 2635 and 
this part.
    (b) Definitions. Section 5501.106(b) sets forth definitions of the 
terms used in the section.
    (c) Prohibited Outside Employment and Activities. Section 
5501.106(c) prohibits certain outside employment and activities that, 
if engaged in by an HHS employee, would pose a conflict with the 
employee's official duties, would cause a reasonable person to question 
the impartiality with which agency programs are administered, or would 
otherwise compromise agency interests.

[[Page 39759]]

    (1) Prohibited Assistance in the Preparation of Grant Applications 
or Contract Proposals. More specifically, Sec. 5501.106(c)(1) prohibits 
an HHS employee from engaging in consultative or professional services, 
for compensation, to prepare, or assist in the preparation of, grant 
applications, contract proposals, program reports, or any other matters 
that are intended to be the subject of dealings with HHS. Such conduct, 
if undertaken on an uncompensated basis, though not expressly 
prohibited by paragraph (c)(1), is subject to the prior approval 
requirement in paragraph (d). This provision carries forward 
longstanding policy reflected in the now superseded HHS Standards of 
Conduct at 45 CFR 73.735-704(a)(2).
    (2) Prohibited Employment in HHS-Funded Activities. Section 
5501.106(c)(2) prohibits an HHS employee from engaging in compensated 
work on an HHS-funded grant, contract, cooperative agreement, 
cooperative research and development agreement, or other similar 
project or arrangement authorized by statute. The paragraph precludes 
the provision of personal services, whether as an employee, consultant, 
contractor, or otherwise, that are rendered in the performance of a 
particular grant, contract, or agreement for which the project derives 
funding from HHS. This provision does not per se bar employment with an 
entity that receives HHS funds, but rather if focuses on discrete 
matters for which the employee's services and attendant compensation 
can be attributed to a defined HHS-funded project or contractual 
arrangement.
    This provision codifies prior HHS policy, as implemented by the HHS 
Form 520, ``Request for Approval of Outside Activity.'' The prohibition 
was deemed necessary to preclude the appearance that a compensated 
employment or business opportunity may have been obtained through the 
use of the employee's official position and to address a number of 
other potential ethics concerns. Given that millions of dollars in HHS 
grants and contracts are awarded annually, the Department has 
determined that maintaining the policy against compensated outside 
employment in grant or contract implementation is critical to protect 
against questions arising regarding the impartiality and objectivity of 
its employees and the administration of the Department's programs. In 
fulfilling its mission, the Department would be hindered if members of 
the public were to question whether HHS employees were using their 
public position or workplace connections for private remunerative gain 
attributable, directly or indirectly, to appropriated funds.
    (3) Prohibited Outside Activities Applicable to Employees of the 
Food and Drug Administration and the Office of the Chief Counsel.
    Under FDA's prior rule, originally adopted in 1972, those employees 
whose duties pose the greatest potential for conflict of interest 
generally could not engage in employment with significantly regulated 
organizations. 45 CFR 73a.735-401(b). The basis for this rule was 
essentially the same as the basis for the rule restricting financial 
interests in significantly regulated organizations (see discussion of 
Sec. 5501.104 above). Not only are such employees in a position to 
affect the financial interests of these organizations through the 
performance of their official duties, but the employees may have access 
to nonpublic information that could be used to the advantage of the 
organizations. Therefore, Sec. 5501.106(c)(3) will substantially 
preserve this prohibition, with respect to employees who are required 
to file public or confidential financial disclosure reports.
    The new rule provides two exceptions to the prohibition on 
employment with a significantly regulated organization. The first 
exception, at paragraph (c)(3)(ii)(A), essentially continues an 
exception found in FDA's prior rule. The purpose of the exception is to 
allow employees who are licensed to practice various medical 
professions to remain current in their professions, including the 
maintenance of licenses or certifications. The list of practices in the 
exception (medicine, dentistry, veterinary medicine, pharmacy, nursing) 
is not exclusive, but illustrative. The practice of the various medical 
professions usually is precisely defined and highly regulated by State 
law, and FDA cannot give a definition of each practice that is covered 
by the exemption. However, the exception is intended to cover only 
employment that involves the provision of medical professional 
services. Thus, for example, the exception would not cover the practice 
of law or accounting. Moreover the exception is not intended to allow 
FDA employees to be employed by a medical product manufacturer in the 
conduct of biomedical research.
    The second exception, in paragraph (c)(3)(ii)(B), will allow 
clerical or similar employment (such as cashier or janitorial work) 
with retail stores that are significantly regulated by FDA. Normally, 
such positions would pose little risk for abuse of nonpublic 
information obtained from FDA, and any potential conflicts of interest 
can be dealt with on a case by case basis.
    In addition to employment with a significantly regulated 
organization, the new rule also prohibits certain self-employed 
business activities. Certain sole proprietorships in fields subject to 
significant FDA regulation may not constitute ``employment,'' within 
the meaning of 5 CFR 2635.603(a), but such activities pose the same, if 
not greater, risks. Therefore, public and confidential disclosure 
report filers would be prohibited from engaging in self-employed 
business activities where the sale or promotion of FDA-regulated 
products is expected to constitute ten percent or more of annual gross 
sales or revenues.
    (4) Prohibited Outside Practice of Law Applicable to Attorneys in 
the Office of the General Counsel.
    Summary. Section 5501.106(c)(4) prohibits attorneys in or 
supervised by the Office of the General Counsel from practicing law 
outside their official positions where the activity, in fact or in 
appearance, may require the assertion of a legal position that 
conflicts with the interests of the Department. Office of the General 
Counsel attorneys are also prohibited from engaging in any outside law 
practice that might require the interpretation of a statute, 
regulation, or rule administered or issued by the Department.
    Exceptions. Consistent with Federal policy embodied in the 
exceptions to the representational bans contained in 18 U.S.C. 203 and 
205, nothing in the section precludes representation or advice, if 
approved by the appropriate official or supervisor, that is: (1) 
Rendered, with or without compensation, to specified relatives or an 
estate for which an employee serves as a fiduciary; or (2) provided, 
without compensation, to an employee subject to disciplinary, loyalty, 
or other personnel administration proceedings.
    In order to take advantage of the exceptions to 18 U.S.C. 203 and 
205 or representing family members or an estate, both statutes 
expressly require the approval of the Government official responsible 
for the employee's appointment. See 18 U.S.C. 203(d) and 205(e). The 
parallel provision in 18 U.S.C. 205(d) that permits an employee to 
provide uncompensated legal assistance to another employee in 
disciplinary, loyalty, or other personnel administration proceedings 
does not explicitly contain an authorization requirement, but specifies 
that the activity must not be ``inconsistent with the faithful 
performance of [the employee's] duties.'' The Office of Government 
Ethics has issued an

[[Page 39760]]

opinion concluding that an employee may not unilaterally make this 
finding; as a result, supervisory approval is required. OGE Informal 
Advisory Letter 82 X 19 (December 9, 1982), as published in ``The 
Informal Advisory Letters and Memoranda and Formal Opinions of the 
United States Office of Government Ethics,'' (the ``OGE Advisory 
Publication''), 313 (1979-1988), which is available for purchase from 
the Government Printing Office. As an outside professional activity, 
such representation would be subject, in any event, to the prior 
approval procedures in Sec. 5501.106(d) of this part.
    Paragraph (c)(4)(ii)(C) makes explicit that neither the ban on 
asserting contrary positions nor the prohibition on interpreting agency 
statutes is intended to proscribe the giving of testimony under oath.
    Asseting Contrary Legal Positions. Paragraph (c)(4)(i)(A) is 
consistent with the rules of professional conduct governing the 
attorney-client relationship. Precluding outside law practice that may 
require the assertion of legal positions adverse to the Department 
derives from the unique and sensitive relationship between an attorney 
and a client, which for attorneys in the Office of the General Counsel, 
is the Department of Health and Human Services.
    Morever, the Department has a legitimate interest in maintaining 
the consistency and credibility of the Department's position before the 
Federal courts. For the most part, the representational bans contained 
in 18 U.S.C. 203 and 205 would preclude outside practice by Department 
attorneys in the Federal courts because nondiversity cases within the 
Federal jurisdiction generally involve controversies in which the 
United States is a party or has a direct and substantial interest. 
However, cases may arise involving the interpretation or application of 
Federal statutes or regulations that do not necessarily implicate the 
direct and substantial interests of the United States.
    The Office of Government Ethics and the Office of Legal Counsel at 
the Department of Justice have opined that the combined involvement of 
a Federal statute and a Federal forum in and of itself does not create 
a direct and substantial interest on the part of the United States for 
purposes of sections 203 and 205. OGE 94 X 7 (February 7, 1994), as 
published in the 1994 Supplement to the ``OGE Advisory Publication''; 
14 Op. O.L.C. 139 (June 7, 1990). As a consequence, Department 
attorneys representing private clients might appear in front of the 
same judges before whom they appear in their official capacities and 
argue different interpretations of Federal statutes or regulations. 
Depending upon the visibility of the issues and any attendant 
controversy, asserting conflicting legal positions may diminish the 
persuasiveness of the advocate and undermine the credibility of both 
clients. Paragraph (c)(4)(i)(A) is intended, therefore, to safeguard 
the interests of the Department as the primary client to which the 
attorney employee owes a professional responsibility.
    Concededly, while representing a private client, a Department 
attorney might take legal positions on a myriad of issues not directly 
related to Federal interests or agency programs--such as jurisdiction, 
service of process, standing, evidence, or statutory construction--that 
differ from those the attorney might have asserted while acting in a 
governmental capacity. The section is not intended to proscribe 
instances of outside practice merely because such issues would have 
been handled differently if the matters arose in the prosecution or 
defense of an agency case. Advocacy with respect to ancillary issues 
unrelated to substantive legal positions or agency administered 
statutes would only rarely have an impact sufficiently adverse to 
agency interests to be proscribed by the regulation.
    Interpreting Agency Administered Statutes. Paragraph (c)(4)(i)(B) 
is intended to effectuate the prohibition on the use of public office 
for private gain, to preclude inconsistent legal positions on core 
issues affecting the interests of the Department, and to protect the 
public interest by preventing any lay perception that an attorney's 
employment with the Department signifies extraordinary competency on 
agency related issues, or that an agency attorney's interpretation 
implicitly is sanctioned or approved by the Department.
    For the most part, outside practice involving agency administered 
statutes would be precluded as a conflicting activity. If the subject 
matter of the proposed representation and the assigned duties of the 
attorney correlate, the outside activity potentially would require, 
under the standards set forth in 5 CFR 2635.402 and 2635.502, the 
employee's disqualification from matters so central or critical to the 
performance of the employee's official duties that the employee's 
ability to perform the duties of the employee's position would be 
materially impaired. Similarly, representation on matters involving the 
application of agency statutes may implicate direct and substantial 
interests of the United States, thus contravening the representational 
bans in 18 U.S.C. 203 and 205.
    Although the regulation to some extent covers areas that are 
subject to existing prohibitions, paragraph (c)(4)(i)(B) reaches 
situations not specifically addressed in the existing standards. Absent 
the prohibition contained in this section, a Department attorney 
principally engaged in advising a client component conceivably could 
obtain outside employment advising, as opposed to representing, a 
private client on areas of agency law to which the attorney is not 
assigned. In these circumstances, there is considerable risk that the 
employment position held by the individual may convey an impression of 
authoritativeness or access to agency experts that may not necessarily 
be warranted. Moreover, private clients, and those aware of the agency 
attorney's involvement, may assume incorrectly that the agency 
attorney's interpretation has been vetted through the Department and is 
effectively a Departmental interpretation as well. Rendering legal 
services that may require the interpretation of any statute, 
regulation, or rule administered or issued by the Department creates an 
appearance that the employee has used the employee's official position 
to obtain an outside business opportunity. Further, if counsel were 
engaged in law practice that involved agency statutes, the potential 
for asserting legal positions adverse to the interests of the 
Department would be heightened.
    Other Prohibitions and Procedures. As a professional activity 
within the meaning of 5 CFR 2636.305(b)(1), the outside practice of law 
must be authorized in advance under the prior approval provisions 
contained in section 5501.106(d). If an outside activity is expected to 
involve conduct prohibited by a statute or Federal regulation, 
including 5 CFR part 2635 and this part, approval must be denied.
    The prohibitions contained in the criminal law, the OGE Standards 
and this supplement constitute considerable impediments to outside law 
practice. Subject to such exceptions as are contained in the cited 
authorities, permission cannot be granted, for example, if the 
activity:
    (1) Creates an actual or apparent conflict with the employee's 
official duties under the criminal conflict of interest provisions in 
18 U.S.C. 208 or the standards set forth in 5 CFR 2635.402 and 
2635.502;
    (2) Involves compensated representational services before any

[[Page 39761]]

department, agency, or court, in relation to any proceeding or other 
particular matter in which the United States is a party or has a direct 
and substantial interest, as proscribed by 18 U.S.C. 203; or
    (3) Entails, irrespective of compensation, prosecution of claims 
against the Government or service as an agent or attorney before any 
department, agency, or court, in connection with any covered matter in 
which the United States is a party or has a direct and substantial 
interest, in contravention of 18 U.S.C. 205.
    Further, if the proposed outside activity would reflect adversely 
upon the Department so as to constitute conduct prejudicial to the 
Government within the meaning of 5 CFR 735.203, approval would be 
denied. In addition, any approved outside activity requiring absence 
from duty is subject to the denial or cancellation of leave due to 
exigencies of staffing and workload.
    Alternatives Considered. In developing this regulation, the 
Department considered several options. The confluence of the many 
restrictions outlined above point in the direction of banning all 
outside practice of law. However, public interest considerations 
require rejection of such a policy. Attorneys in the Federal government 
can play a significant role in providing legal assistance to those in 
need without running afoul of these provisions. In keeping with their 
ethical obligation to the system of justice, Department attorneys may 
provide legal services pro bono publico in areas such as landlord-
tenant disputes, State criminal defense work, and State workers' 
compensation claims, that are unlikely to pose a conflict or other 
ethical concern. Indeed, the Department encourages such volunteer 
activities, if not inconsistent with the laws and regulations described 
above. Executive Order 12988 specifically directs that all Federal 
agencies ``develop appropriate programs to encourage and facilitate pro 
bono legal and other volunteer service by government employees to be 
performed on their own time, including attorneys, as permitted by 
statute, regulation, or other rule or guideline.''
    The Department considered a proposal to ban compensated practice of 
law. The availability of pecuniary gain could increase instances of 
outside representation or induce the continuous practice of law with 
concomitant administrative, management, and conflicts avoidance burdens 
that are not implicated by the infrequent or occasional uncompensated 
activities currently permitted on behalf of indigent clients, specified 
relatives and estates, and individuals subject to disciplinary, 
loyalty, or other personnel administration proceedings. On the other 
hand, the Department recognizes that many compensated activities--such 
as preparing a will, drafting Subchapter S incorporation documents, 
searching real estate titles, advising on State law contract disputes, 
or representing a client in traffic court--can generally be undertaken 
without detriment to the agency's interests, provided that the employee 
adheres to the limitations of this rule. The Department, therefore, 
opted for the less restrictive approach embodied in this regulation.
    (d) Prior Approval for Outside Employment and Other Outside 
Activities. Section 2635.803 of the OGE Standards provides that an 
agency, by supplemental regulation, may require its employees to obtain 
advance administrative approval before engaging in certain types of 
outside employment or other outside activities, where the agency has 
determined that such a requirement is necessary or desirable for the 
purpose of administering its ethics program. Provisions in the HHS 
Standards of Conduct and the FDA Supplement, 45 CFR parts 73 and 73a 
(which are superseded by this rule), have long required employees to 
obtain written approval prior to engaging in certain outside employment 
or other outside activities. Section 5501.106(d) continues this 
requirement.
    The prior approval requirement has been an integral part of the HHS 
ethics program. Its continuance is deemed necessary to ensure that an 
employee's participation in outside employment or other outside 
activities does not adversely affect operations within the employing 
component or place the employee at risk of violating applicable 
statutes and regulations governing employee conduct.
    (1) General Approval Requirement. Section 5501.106(d)(1) enumerates 
the employment or activities, with or without compensation, for which 
prior approval is required: (i) Providing consultative or professional 
services, including service as an expert witness; (ii) engaging in 
teaching, speaking, writing or editing that relates to an employee's 
official duties or that is undertaken as a result of an invitation from 
a prohibited source; and (iii) providing services to a non-Federal 
entity as an officer, director, or board member, or as a member of a 
group, however denominated, that renders advice, counsel, or 
consultation.
    Paragraph (d)(1)(iii), however, does not require prior approval for 
uncompensated (other than reimbursement of expenses) service as an 
officer, director, board member, or advisory group member in a 
political, religious, social, fraternal or recreational organization, 
unless the position held by the employee requires the provision of 
professional services. For example, an HHS employee trained as an 
accountant may serve, without prior approval, on a church board and 
keep the church's books. Providing accounting services is not a 
requirement of service on the board. However, if the church were to 
hire the employee, with or without compensation, as its accountant, 
prior approval would be required.
    Prior approval is required for service as an officer, director, 
board member, or advisory group member in a professional association or 
similar organization. Officeholding in a professional association may 
raise ``representation'' issues and other ethics concerns not usually 
encountered in the context of political, religious, social, fraternal 
or recreational organizations.
    (2) Additional approval requirement applicable to employees of the 
Food and Drug Administration and the Office of the Chief Counsel.
    Under FDA's prior rule, adopted in 1972, all FDA employees have 
been required to obtain prior approval for all outside employment, with 
limited exceptions. 45 CFR 73a.735-401. This requirement proved to be 
an effective mechanism for preventing inadvertent conflicts of interest 
among FDA employees. Section 5501.106(d)(2) will continue this 
requirement.
    FDA estimates that approximately 25% of all consumer spending in 
the United States is on products regulated by FDA. FDA can take actions 
that affect enterprises as diverse as grocery retailers, home appliance 
manufacturers, cosmetics distributors, and dairy farmers. Even non-
profit organizations, such as patient advocacy groups or blood banks, 
can have an interest in FDA actions. In light of the pervasiveness and 
variety of FDA-regulated and FDA-affected organizations in the United 
States, there is a significant risk that employees engaged in outside 
employment or self-employed business activity may confront actual or 
apparent conflicts of interest.
    The prior approval requirement in Sec. 5501.106(d)(2) will allow 
FDA to assist employees in identifying organizations that are regulated 
by FDA or significantly involved in FDA issues. Ultimately, prior 
approval helps FDA employees to avoid conflicting activities with such 
organizations.
    Section 5501.106(d)(2) codifies existing practice by applying the 
prior approval requirement to employees of

[[Page 39762]]

the FDA Office of the Chief Counsel. The rule also codifies current 
practice by requiring prior approval for self-employed business 
activity.
    Consistent with the other prior approval provisions applicable to 
all HHS employees, Sec. 5501.106(d)(2) will not require approval for 
participation in the activities of a political, religious, social, 
fraternal, or recreational organization, unless the position requires 
the provision of professional services, or is rendered for compensation 
(other than reimbursement of expenses). Moreover, the prior approval 
requirement will not apply to those categories of employment that have 
been exempted, pursuant to Sec. 5501.106(d)(5), based on a 
determination that such employment activities generally would be 
approved and are not likely to involve conduct prohibited by statute or 
regulation.
    (3) Submission of Requests for Prior Approval. This paragraph 
specifies that requests for approval of outside activities must be 
submitted to the employee's supervisor a reasonable time in advance of 
the proposed activity. Prior approval requests must include information 
sufficient to assess the activity, such as: the employee's name, 
organizational location, position title, and grade or rank; the name of 
the person or organization for whom the outside work is to be 
performed; a description of the type and location of such work; the 
method of compensation; the duration of the activity, and the number of 
hours the employee expects to be engaged in such work.
    In order to implement the prohibitions contained in paragraphs (c) 
(1) and (2) of this section relating to HHS grant and contract 
activities, the employee must provide additional information as 
currently required on the HHS Form 520, ``Request for Approval of 
Outside Activity.'' An employee who renders consultative or 
professional services must state whether the client or outside employer 
is a current or prospective HHS grantee or contractor. And, an 
employee, irrespective of the type of services to be provided, must 
identify any HHS funding sources for the specific activity in which the 
employee proposes to engage.
    For activities involving teaching, speaking, writing, or editing, 
the employee must submit the proposed text of any disclaimer that is 
required by either the OGE Standards or the agency instructions or 
manual issuances authorized by paragraph (d)(5) of Sec. 5501.106. 
Section 2635.807(b)(2) of the OGE Standards permits an employee who is 
engaged in outside teaching, speaking or writing, to use, or permit the 
use of, the employee's title or position in connection with an article 
published in a scientific or professional journal, provided that the 
title or position is accompanied by a reasonably prominent disclaimer 
satisfactory to the agency. The disclaimer must indicate that the views 
expressed in the article do not necessarily represent the views of the 
agency or the United States.
    (4) Standard for Approval. Paragraph (d)(4) specifies the standard 
for approval of outside employment or other activities. An activity 
that is not expected to involve conduct prohibited by statute or 
regulation, including part 2635 and the agency supplemental, shall be 
approved. However, a note following the paragraph cautions that during 
the course of an otherwise approvable activity, situations may arise, 
or actions may be contemplated, that, nevertheless, pose ethical 
concerns.
    (5) Responsibilities of the Designated Agency Ethics Official and 
Component Agencies. Section 5501.106(d)(5) authorizes the Designated 
Agency Ethics Official (DAEO) or the separate agency components, with 
the concurrence of the DAEO, to issue instructions or manual issuances 
exempting categories of employment or other activities from the prior 
approval requirement based on a determination that the employment or 
activities within those categories would generally be approved and are 
not likely to involve conduct prohibited by statute or Federal 
regulation, including the OGE Standards and this supplemental 
regulation.
    Through these instructions or manual issuances, agency components 
may specify internal procedures governing the submission of prior 
approval requests, designate appropriate officials to act on such 
requests, and include examples of outside employment or other outside 
activities that are permissible or impermissible consistent with the 
OGE Standards and this part.
    The OGE Standards also recognize that agencies may have policies 
requiring advance agency review, clearance, or approval of certain 
speeches, books, articles, or similar products to determine whether the 
material contains an appropriate disclaimer, discloses nonpublic 
information, or otherwise complies with the teaching, speaking and 
writing provisions of 5 CFR 2635.807. Because the need for preclearance 
and/or disclaimers may differ depending upon the activities and 
missions of the various components of the Department, the rule 
authorizes inclusion of such policies within the instructions or manual 
issuances.
    The Department will continue to employ HHS Form 520 as both a prior 
approval request form and a record of the disposition by the approval 
official. Paragraph (d)(5)(iii) of the section requires officials 
responsible for the administrative aspects of these regulations to make 
provisions for the filing and retention of these forms.
    No provision is made in these regulations, however, for an annual 
reporting of outside activities submitted on HHS Form 521, as 
previously required by 45 CFR 73.735-709. That section elicited an 
annual written verification whether the work or activity described in 
the original request was actually performed and required the employee 
to specify the amount of time spent and whether the activity would 
continue unchanged. Because the HHS Form 520 contains a blank for 
specifying duration and any substantive change in the scope of the 
approved activity would constitute a new activity requiring submission 
of another HHS Form 520, the annual report appears to be unnecessarily 
duplicative. Moreover, the information requested would, in any event, 
form the basis of a responsible dialogue between employees and 
supervisors concerning workload allocation and the avoidance of 
conflicts. The minimal benefit to be derived from an annual report does 
not outweigh the considerable burden involved in collecting, tracking, 
and reviewing the forms. Accordingly, the requirement for filing an 
annual HHS Form 521 expires upon the effective date of this rule.

Section 5501.107  Teaching, Speaking and Writing by Special Government 
Employees in the Public Health Service

    Section 5501.107 is intended to deal with a common situation 
presented by special Government employees in the health agencies of the 
Department who participate as speakers in continuing medical education 
(CME) courses and similar activities. These health agencies must rely 
on special Government employees who are experts in various biomedical 
fields. Such individuals tend to be active in private CME programs, 
which frequently are sponsored or underwritten by the medical product 
industry. At FDA, in particular, it is very common to find that 
advisory committee members, in their private capacity as recognized 
experts in various biomedical fields, receive regular requests to 
participate in CME courses from medical product manufacturers. 
Sometimes these manufacturers will have interests that

[[Page 39763]]

may be affected substantially by official matters to which the special 
Government employee already has been assigned. This provision makes 
clear that such employees may accept offers of compensation to 
participate in CME courses and similar events only when the employee 
recuses from the particular matter that would affect the interests of 
the manufacturer.

Section 5501.108  Exception to the Prohibition Against Assisting in the 
Prosecution of Claims Against, or Acting as an Agent or Attorney 
Before, the Government, Applicable Only to Employees Assigned to 
Federally Recognized Indian Tribes or Alaska Native Villages or 
Regional or Village Corporations Pursuant to the Intergovernmental 
Personnel Act

    Section 2635.902 of the OGE Standards contains a list of statutory 
provisions to which an employee's conduct must conform. Among these 
provisions is the criminal prohibition of 18 U.S.C. 205, which 
generally bans representational activities, whether or not for 
compensation, performed by any employee in claims against, or in other 
matters affecting, the Government.
    The Indian Self-Determination Act (25 U.S.C. 450i(f)), however, 
permits Federal employees detailed or assigned to Indian tribes or 
Alaska Native villages or regional or village corporations, pursuant to 
the Intergovernmental Personnel Act (5 U.S.C. 3372), to act as agents 
or attorneys for, or appear on behalf of, such tribes or Alaska Native 
villages or corporations in connection with any matter pending before 
any department, agency, court, or commission, in which the United 
States is a party or has a direct and substantial interest; provided 
that each such employee advises in writing the head of the department, 
agency, court, or commission before which the individual appears, of 
any personal and substantial involvement the individual may have had as 
an employee of the United States in connection with the matter. Section 
5501.108 is added, therefore, to make explicit this exception to 18 
U.S.C. 205, as referenced in Secs. 2635.801(d)(4) and 2635.902(d) of 
the OGE Standards.

III. Matters of Regulatory Procedure

Administrative Procedure Act

    The Department of Health and Human Services has found that good 
cause exists under 5 U.S.C. 553(b) and (d) for waiving, as unnecessary 
and contrary to the public interest, the general notice of proposed 
rulemaking and the 30-day delay in effectiveness as to this final rule. 
Similar regulations have been applicable to Department employees under 
the now superseded HHS Standards of Conduct and FDA Supplement 
contained at 45 CFR parts 73 and 73a. An immediate effective date is 
necessary to effect a smooth regulatory transition and to avoid a lapse 
in applicable procedural and substantive rules relating to prior 
approval of outside activities and prohibited financial interests that 
could otherwise occur due to the expiration of ``grandfathering'' 
provisions contained in the OGE Standards. See 60 FR 66857.
    Moreover, the proposed rulemaking requirements of the 
Administrative Procedure Act are not applicable because this rule deals 
with agency organization, procedure, or practice, 5 U.S.C. 553(b), and 
relates to matters of agency management and personnel, 5 U.S.C. 
553(a)(2). The rule also contains several substantive provisions that 
grant or recognize an exemption or relieve a restriction such that an 
immediate effective date is permitted under 5 U.S.C.(d)(1).

Executive Order 12866, Regulatory Planning and Review

    In issuing this rule, the Department of Health and Human Services 
has adhered to the regulatory philosophy and the applicable principles 
of regulations set forth in section 1 of Executive Order 12866 of 
September 30, 1993. This rule is limited to agency organization, 
management, or personnel matters, and thus is not a ``significant 
regulatory action,'' as defined in sections 3(d) through (f) of the 
Executive order.

Regulatory Flexibility Act

    The Department of Health and Human Services has determined under 
the Regulatory Flexibility Act (5 U.S.C. chapter 6) that this 
regulation will not have a significant economic impact on a substantial 
number of small business entities because it affects only HHS 
employees.

Paperwork Reduction Act

    The Department of Health and Human Services has determined that the 
Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply because 
this regulation does not impose any new information collection 
requirements that require the approval of the Office of Management and 
Budget.

List of Subjects in 5 CFR Part 5501

    Conflict of interests, Government employees.

    Dated: July 17, 1996.
Donna E. Shalala,
Secretary, Department of Health and Human Services.
    Approved: July 22, 1996.
Stephen D. Potts,
Director, Office of Government Ethics.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services, with the concurrence of the Office of Government 
Ethics, is amending title 5 of the Code of Federal Regulations by 
adding a new chapter XLV, consisting of part 5501, to read as follows:

5 CFR CHAPTER XLV--DEPARTMENT OF HEALTH AND HUMAN SERVICES

PART 5501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES

Sec.
5501.101  General.
5501.102  Designation of HHS components as separate agencies.
  5501.103  Gifts from federally recognized Indian tribes or Alaska 
Native villages or regional or village corporations.
  5501.104  Prohibited financial interests applicable to employees 
of the Food and Drug Administration and the Office of the Chief 
Counsel.
  5501.105  Exemption for otherwise disqualifying financial 
interests derived from Indian or Alaska Native birthrights.
  5501.106  Outside employment and other outside activities.
  5501.107  Teaching, speaking and writing by special Government 
employees in the Public Health Service.
  5501.108  Exception to the prohibition against assisting in the 
prosecution of claims against, or acting as an agent or attorney 
before, the Government, applicable only to employees assigned to 
federally recognized Indian tribes or Alaska Native villages or 
regional or village corporations pursuant to the Intergovernmental 
Personnel Act.

    Authority: 5 U.S.C. 301, 7301, 7353; 5 U.S.C. App. (Ethics in 
Government Act of 1978); 25 U.S.C. 450i(f); 42 U.S.C. 216; 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; 5 CFR 2635.105, 
2635.203, 2635.403, 2635.802, 2635.803.


Sec. 5501.101  General.

    (a) Purpose. The regulations in this part apply to employees of the 
Department of Health and Human Services (HHS) and supplement the 
Standards of Ethical Conduct for Employees of the Executive Branch 
contained in 5 CFR part 2635. In addition to 5 CFR part 2635 and this 
part, employees are required to comply with implementing guidance and 
procedures issued by HHS components

[[Page 39764]]

in accordance with 5 CFR 2635.105(c). Employees are also subject to the 
executive branch-wide financial disclosure regulations at 5 CFR part 
2634, the Employee Responsibilities and Conduct regulations at 5 CFR 
part 735, and the HHS regulations regarding conduct at 45 CFR part 73.
    (b) Applicability. The regulations in this part apply to 
individuals who are ``employees'' within the meaning of 5 CFR 
2635.102(h). The regulations thus apply to special Government 
employees, except to the extent they are specifically excluded from 
certain provisions, and to uniformed service officers in the Public 
Health Service Commissioned Corps on active duty.
    (c) Definitions. Unless a term is otherwise defined in this part, 
the definitions set forth in 5 CFR part 2635 apply to terms in this 
part. In addition, for purposes of this part:
    (1) Federally recognized Indian tribe or Alaska Native village or 
regional or village corporation means any Indian tribe, band, nation, 
or other organized group or community, including any Alaska Native 
village or regional or village corporation as defined in or established 
pursuant to the Alaska Native Claims Settlement Act, 43 U.S.C. 1601 et 
seq., which is recognized as eligible for the special programs and 
services provided by the United States to Indians because of their 
status as Indians.
    (2) Significantly regulated organization means an organization for 
which the sales of products regulated by the Food and Drug 
Administration (FDA) constitute ten percent or more of annual gross 
sales in the organization's previous fiscal year; where an organization 
does not have a record of sales of FDA-regulated products, it will be 
deemed to be significantly regulated if its operations are solely in 
fields regulated by FDA.


Sec. 5501.102  Designation of HHS components as separate agencies.

    (a) Separate agency components of HHS. Pursuant to 5 CFR 
2635.203(a), each of the thirteen components of HHS listed below is 
designated as an agency separate from each of the other twelve listed 
components and, for employees of that component, as an agency distinct 
from the remainder of HHS. However, the components listed below are not 
deemed to be separate agencies for purposes of applying any provision 
of 5 CFR part 2635 or this part to employees of the remainder of HHS:
    (1) Administration on Aging;
    (2) Administration for Children and Families:
    (3) Agency for Health Care Policy and Research;
    (4) Agency for Toxic Substances and Disease Registry;
    (5) Centers for Disease Control and Prevention;
    (6) Food and Drug Administration;
    (7) Health Care Financing Administration;
    (8) Health Resources and Services Administration;
    (9) Indian Health Service;
    (10) National Institutes of Health;
    (11) Office of Consumer Affairs;
    (12) Program Support Center; and
    (13) Substance Abuse and Mental Health Services Administration.
    (b) Definition--(1) Employee of a component includes, in addition 
to employees actually within a component, an employee in a division or 
region of the Office of the General Counsel that principally advises or 
represents that component.
    (2) Remainder of HHS means employees in the Office of the Secretary 
and Staff Divisions, employees of the Office of the General Counsel 
with Department-wide responsibility, and any HHS employee not in one of 
the 13 components designated as separate agencies in paragraph (a) of 
this section.
    (c) Applicability of separate agency designations. The designations 
in paragraph (a) of this section identify an employee's ``agency'' for 
purposes of:
    (1) Determining when a person is a prohibited source within the 
meaning of 5 CFR 2635.203(d) for purposes of applying:
    (i) The regulations at subpart B of 5 CFR part 2635 governing gifts 
from outside sources; and
    (ii) The regulations at Sec. 5501.106 requiring prior approval of 
outside employment and other outside activities; and
    (2) Determining whether teaching, speaking or writing relates to 
the employee's official duties within the meaning of 5 CFR 
2635.807(a)(2)(i).


Sec. 5501.103  Gifts from federally recognized Indian tribes or Alaska 
Native villages or regional or village corporations.

    (a) Tribal or Alaska Native gifts. In addition to the gifts which 
come within the exceptions set forth in 5 CFR 2635.204, and subject to 
all provisions of 5 CFR 2635.201 through 2635.205, an employee may 
accept unsolicited gifts of native artwork or crafts from federally 
recognized Indian tribes or Alaska Native villages or regional or 
village corporations, provided that the aggregate market value of 
individual gifts received from any one tribe or village under the 
authority of this paragraph shall not exceed $200 in a calendar year.
    (b) Limitations on use of exception. If the donor is a tribe or 
village that has interests that may be substantially affected by the 
performance or nonperformance of an employee's official duties, the 
employee may accept the gifts authorized by paragraph (a) of this 
section only where there is a written finding by the agency designee 
that acceptance of the gift is in the agency's interest and will not 
violate any of the limitations on the use of exceptions contained in 5 
CFR 2635.202(c).


Sec. 5501.104  Prohibited financial interests applicable to employees 
of the Food and Drug Administration and the Office of the Chief 
Counsel.

    (a) General prohibition. Except as permitted by paragraph (b) of 
this section, no employee or spouse or minor child of an employee, 
other than a special Government employee or the spouse or minor child 
of a special Government employee, of the Food and Drug Administration 
or of the Office of the Chief Counsel shall have a financial interest 
in a significantly regulated organization.
    (b) Exceptions. Notwithstanding the prohibition in paragraph (a) of 
this section:
    (1) An employee or spouse or minor child of an employee may hold a 
pension arising from employment with a significantly regulated 
organization.
    (2) An employee who is not required to file a public or 
confidential financial disclosure report pursuant to 5 CFR part 2634, 
or the spouse or minor child of such employee, may hold a financial 
interest in a significantly regulated organization if:
    (i) The total cost or value, measured at the time of acquisition, 
of the combined interests of the employee and the employee's spouse and 
minor children in the regulated organization was $5,000 or less;
    (ii) The holding, if it represents an equity interest, constitutes 
less than 1 percent of the total outstanding equity of the 
organization; and
    (iii) The total holdings in significantly regulated organizations 
account for less than 50 percent of the total value of the combined 
investment portfolios of the employee and the employee's spouse and 
minor children.
    (3) An employee or spouse or minor child of an employee may have an 
interest in a significantly regulated organization that constitutes any 
interest in a publicly traded or publicly available investment fund 
(e.g., a mutual fund), or a widely held pension or similar fund, which, 
in the literature it distributes to prospective and current

[[Page 39765]]

investors or participants, does not indicate the objective or practice 
of concentrating its investments in significantly regulated 
organizations, if the employee neither exercises control nor has the 
ability to exercise control over the financial interests held in the 
fund.
    (4) In cases involving exceptional circumstances, the Commissioner 
or the Commissioner's designee may grant a written exception to permit 
an employee, or the spouse or minor child of an employee, to hold a 
financial interest in a significantly regulated organization based upon 
a determination that the application of the prohibition in paragraph 
(a) of this section is not necessary to ensure public confidence in the 
impartiality or objectivity with which HHS programs are administered or 
to avoid a violation of part 2635 of this title.

    Note: With respect to any excepted financial interest, employees 
are reminded of their obligations under 5 CFR part 2635, and 
specifically their obligation under subpart D to disqualify 
themselves from participating in any particular matter in which 
they, their spouses or minor children have a financial interest. 
Furthermore, the agency may prohibit or restrict an individual 
employee from acquiring or holding any financial interest or a class 
of financial interests based on the agency's determination that the 
interest creates a substantial conflict with the employee's duties, 
within the meaning of 5 CFR 2635.403.


Sec. 5501.105  Exemption for otherwise disqualifying financial 
interests derived from Indian or Alaska Native birthrights.

    (a) Under 18 U.S.C. 208(b)(4), an employee who otherwise would be 
disqualified may participate in a particular matter where the otherwise 
disqualifying financial interest that would be affected results solely 
from the interest of the employee, or the employee's spouse or minor 
child, in birthrights:
    (1) In an Indian tribe, band, nation, or other organized group or 
community, including any Alaska Native village corporation as defined 
in or established pursuant to the Alaska Native Claims Settlement Act, 
which is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians;
    (2) In an Indian allotment the title to which is held in trust by 
the United States or which is inalienable by the allottee without the 
consent of the United States; or
    (3) In an Indian claims fund held in trust or administered by the 
United States.
    (b) The exemption described in paragraph (a) of this section 
applies only if the particular matter does not involve the Indian 
allotment or claims fund or the Indian tribe, band, nation, organized 
group or community, or Alaska Native village corporation as a specific 
party or parties.


Sec. 5501.106  Outside employment and other outside activities.

    (a) Applicability. This section does not apply to special 
Government employees.
    (b) Definitions. For purposes of this section:
    (1) Compensation has the meaning set forth in 5 CFR 
2635.807(a)(2)(iii).
    (2) Consultative services means the provision of personal services 
by an employee, including the rendering of advice or consultation, 
which requires advanced knowledge in a field of science or learning 
customarily acquired by a course of specialize instruction and study in 
an institution of higher education, hospital, or other similar 
facility.
    (3) Professional services means the provision of personal services 
by an employee, including the rendering of advice or consultation, 
which involves the skills of a profession as defined in 5 CFR 
2636.305(b)(1).
    (c) Prohibited outside employment and activities--(1) Prohibited 
assistance in the preparation of grant applications or contract 
proposals. An employee shall not provide consultative or professional 
services, for compensation, to or on behalf of any other person to 
prepare, or assist in the preparation of, any grant application, 
contract proposal, program report, or other document intended for 
submission to HHS.
    (2) Prohibited employment in HHS-funded activities. An employee 
shall not, for compensation, engage in employment, as defined in 5 CFR 
2635.603(a), with respect to a particular activity funded by an HHS 
grant, contract, cooperative agreement, cooperative research and 
development agreement, or other funding mechanism authorized by 
statute.
    (3) Prohibited outside activities applicable to employees of the 
Food and Drug Administration and the Office of the Chief Counsel. An 
employee of the Food and Drug Administration or the Office of the Chief 
Counsel who is required to file a public or confidential financial 
disclosure report pursuant to 5 CFR part 2634 shall not:
    (i) Engage in any self-employed business activity for which the 
sale or promotion of FDA-regulated products is expected to constitute 
ten percent or more of annual gross sales or revenues; or
    (ii) Engage in employment, as defined in 5 CFR 2635.603(a), whether 
or not for compensation, with a significantly regulated organization, 
as defined in Sec. 5501.101(c)(2), unless the employment meets either 
of the following exceptions:
    (A) The employment consists of the practice of medicine, dentistry, 
veterinary medicine, pharmacy, nursing, or similar practices, provided 
that the employment does not involve substantial unrelated non-
professional duties, such as personnel management, contracting and 
purchasing responsibilities (other than normal ``out-of-stock'' 
requisitioning), and does not involve employment by a medical product 
manufacturer in the conduct of biomedical research; or
    (B) The employment is limited to clerical or similar services (such 
as cashier or janitorial services) in retail stores, such as 
supermarkets, drug stores, or department stores.
    (4) Prohibited outside practice of law applicable to attorneys in 
the Office of the General Counsel.
    (i) An employee who serves as an attorney in or under the 
supervision of the Office of the General Counsel shall not engage in 
any outside practice of law that might require the attorney to:
    (A) Assert a legal position that is or appears to be in conflict 
with the interests of the Department of Health and Human Services, the 
client to which the attorney owes a professional responsibility; or
    (B) Interpret any statute, regulation or rule administered or 
issued by the Department.
    (ii) Exceptions. Nothing in this section prevents an employee from:
    (A) Acting, with or without compensation, as an agent or attorney 
for, or otherwise representing, the employee's parents, spouse, child, 
or any person for whom, or for any estate for which, the employee is 
serving as guardian, executor, administrator, trustee, or other 
personal fiduciary to the extent permitted by 18 U.S.C. 203 and 205, or 
from providing advice or counsel to such persons or estate; or
    (B) Acting, without compensation, as an agent or attorney for, or 
otherwise representing, any person who is the subject of disciplinary, 
loyalty, or other personnel administration proceedings in connection 
with those proceedings to the extent permitted by 18 U.S.C. 205, or 
from providing uncompensated advice or counsel to such person; or
    (C) Giving testimony under oath or from making statements required 
to be made under penalty for perjury or contempt.

[[Page 39766]]

    (iii) Specific approval procedures.
    (A) The exceptions to 18 U.S.C. 203 and 205 described in paragraph 
(c)(4)(ii)(A) of this section do not apply unless the employee obtained 
the approval of the Government official responsible for the appointment 
of the employee to a Federal position.
    (B) The exception to 18 U.S.C. 205 described in paragraph 
(c)(4)(ii)(B) of this section does not apply unless the employee has 
obtained the approval of a supervisory official who has authority to 
determine whether the employee's proposed representation of another 
person in a personnel administration matter is consistent with the 
faithful performance of the employee's duties.
    (d) Prior approval for outside employment and other outside 
activities--(1) General approval requirement. Except to the extent that 
an employment or other activity has been exempted under paragraph 
(d)(5) of this section, an employee shall obtain written approval prior 
to engaging, with or without compensation, in the following outside 
employment or activities:
    (i) Providing consultative or professional services, including 
service as an expert witness.
    (ii) Engaging in teaching, speaking, writing, or editing that:
    (A) Relates to the employee's official duties within the meaning of 
5 CFR 2635.807(a)(2)(i)(B) through (E); or
    (B) Would be undertaken as a result of an invitation to engage in 
the activity that was extended to the employee by a person who is a 
prohibited source within the meaning of 5 CFR 2635.203(d), as modified 
by Sec. 5501.102.
    (iii) Providing services to a non-Federal entity as an officer, 
director, or board member, or as a member of a group, such as a 
planning commission advisory council, editorial board, or scientific or 
technical advisory board or panel, which requires the provision of 
advice, counsel, or consultation, unless the service is provided 
without compensation other than reimbursement of expenses to a 
political, religious, social, fraternal, or recreational organization 
and the position held does not require the provision of professional 
services within the meaning of paragraph (b)(3) of this section.
    (2) Additional approval requirement for employees of the Food and 
Drug Administration and the Office of the Chief Counsel.
    (i) In addition to the general approval requirements set forth in 
paragraph (d)(1) of this section, an employee of the Food and Drug 
Administration or the Office of the Chief Counsel shall obtain written 
approval prior to engaging in any outside employment, as defined in 5 
CFR 2635.603(a), whether or not for compensation, or any self-employed 
business activity.
    (ii) The requirement of paragraph (d)(2)(i) of this section does 
not apply to participation in the activities of a political, religious, 
social, fraternal, or recreational organization, unless the position 
held requires the provision of professional services or is performed 
for compensation other than the reimbursement of expenses.
    (iii) The requirement of paragraph (d)(2)(i) of this section shall 
not apply to the extent that an employment activity has been exempted, 
pursuant to paragraph (d)(5) of this section.
    (3) Submission of requests for approval. An employee seeking to 
engage in any of the activities for which advance approval is required 
shall make a written request for approval a reasonable time before 
beginning the activity. This request should be directed to the 
employee's supervisor who will forward it to the official authorized to 
approve outside employment and activities requests for the employee's 
component. All requests for prior approval shall include the following 
information:
    (i) The employee's name, organizational location, occupational 
title, grade, and salary;
    (ii) The nature of the proposed outside employment or other outside 
activity, including a full description of the specific duties or 
services to be performed;
    (iii) A description of the employee's official duties that relate 
in any way to the proposed activity;
    (iv) The name and address of the person or organization for whom or 
with which the work or activity will be done, including the location 
where the services will be performed;
    (v) The estimated total time that will be devoted to the activity. 
If the proposed outside activity is to be performed on a continuing 
basis, a statement of the estimated number of hours per year; for other 
employment, a statement of the anticipated beginning and ending date;
    (vi) A statement as to whether the work can be performed entirely 
outside of the employee's regular duty hours and, if not, the estimated 
number of hours of absence from that will be required;
    (vii) The method of basis of any compensation (e.g., fee, per diem, 
honorarium, royalties, stock options, travel and expenses, or other);
    (viii) A statement as to whether the compensation is derived from 
an HHS grant, contract, cooperative agreement, or other source of HHS 
funding;
    (ix) For activities involving the provision of consultative or 
professional services, a statement indicating whether the client, 
employer, or other person on whose behalf the services are performed is 
receiving, or intends to seek, an HHS grant, contract, cooperative 
agreement, or other funding relationship; and
    (x) For activities involving teaching, speaking, writing or 
editing, the proposed text of any disclaimer required by 5 CFR 
2635.807(b)(2) or by the instructions or manual issuances authorized 
under paragraph (d)(5) of this section.
    (4) Standard for approval. Approval shall be granted unless it is 
determined that the outside employment or other outside activity is 
expected to involve conduct prohibited by statute or Federal 
regulation, including 5 CFR part 2635 and this part.

    Note: The granting of granting of approval for an outside 
activity does not relieve the employee of the obligation to abide by 
all applicable laws governing employee conduct nor does approval 
constitute a sanction of any violation. Approval involves an 
assessment that the general activity as described on the submission 
does not appear likely to violate any criminal statutes or other 
ethics rules. Employees are reminded that during the course of an 
otherwise approvable activity, situations may arise, or actions may 
be contemplated, that, nevertheless, pose ethical concerns.

    Example 1: A clerical employee with a degree in library science 
volunteers to work on the acquisitions committee at a local public 
library. Serving on a panel that renders advice to a non-Federal 
entity is subject to prior approval. Because recommending books for 
the library collection normally would not pose a conflict with the 
typing duties assigned the employee, the request would be approved.
    Example 2: While serving on the library acquisitions committee, 
the clerical employee in the preceding example is asked to help the 
library business office locate a missing book order. Shipment of the 
order is delayed because the publisher has declared bankruptcy and 
its assets, including inventory in the warehouse, have been frozen 
to satisfy the claims of the Internal Revenue Service and other 
creditors. The employee may not contact the Federal bankruptcy 
trustee to seek, on behalf of the public library, the release of the 
books. Even though the employee's service on the acquisitions 
committee had been approved, a criminal statute, 18 U.S.C. 205, 
would preclude any representation by a Federal employee of an 
outside entity before a Federal court or agency with respect to a 
matter in which the United States is a party or has a direct and 
substantial interest.

    (5) Responsibilities of the designated agency ethics official and 
component agencies. (i) The designated agency

[[Page 39767]]

ethics official or, with the concurrence of the designated agency 
ethics official, each of the separate agency components of HHS listed 
in Sec. 5501.102 may issue an instruction or manual issuance exempting 
categories of employment or other outside activities from a requirement 
of prior written approval based on a determination that the employment 
or activities within those categories would generally be approved and 
are not likely to involve conduct prohibited by statute or Federal 
regulations, including 5 CFR part 2635 and this part.
    (ii) HHS components may specify internal procedures governing the 
submission of prior approval requests and designate appropriate 
officials to act on such requests. The instructions or manual issuances 
may include examples of outside employment and other outside activities 
that are permissible or impermissible consistent with 5 CFR part 2635 
and this part. With respect to teaching, speaking, writing, or editing 
activities, the instructions or manual issuances may specify 
preclearance procedures and/or require disclaimers indicating that the 
views expressed do not necessarily represent the views of the agency or 
the United States.
    (iii) The officials within the respective HHS components who are 
responsible for the administrative aspects of these regulations and the 
maintenance of records shall make provisions for the filing and 
retention of requests for approval of outside employment and other 
outside activities and copies of the notification of approval or 
disapproval.


Sec. 5501.107  Teaching, speaking and writing by special Government 
employees in the Public Health Service.

    (a) Applicability. This section applies to special Government 
employees in the Public Health Service who otherwise are prohibited 
from accepting compensation for teaching, speaking or writing that is 
related to their official duties, within the meaning of 5 CFR 
2635.807(a)(2)(i)(C), because the invitation or the offer of 
compensation for the activity was extended at a time when the special 
Government employee was assigned to perform official duties that may 
substantially affect the interests of the inviter or offeror.
    (b) Permissible compensation. A special Government employee may 
accept compensation for teaching, speaking or writing in circumstances 
described in paragraph (a) of this section only where the special 
Government employee recuses from the official assignment that may 
substantially affect the interests of the person who extended the 
invitation to engage in the activity or the offer of compensation.


Sec. 5501.108  Exception to the prohibition against assisting in the 
prosecution of claims against, or acting as an agent or attorney 
before, the Government, applicable only to employees assigned to 
federally recognized Indian tribes or Alaska Native villages or 
regional or village corporations pursuant to the Intergovernmental 
Personnel Act.

    (a) 18 U.S.C. 205. Section 205 of title 18 of the United States 
Code prohibits an employee, whether or not for compensation, from 
acting as an agent or attorney for anyone in a claim against the United 
States, or from acting in such capacity on behalf of another before any 
department, agency, or other specified entity, in any particular matter 
in which the United States is a party or has a direct and substantial 
interest.
    (b) Exception applicable only to employees assigned to federally 
recognized Indian tribes or Alaska Native villages or regional or 
village corporations pursuant to the Intergovernmental Personnel Act. 
Notwithstanding the provisions of 18 U.S.C. 205, the Indian Self-
Determination Act (25 U.S.C. 450i(f)) authorizes Federal employees 
detailed or assigned to Indian tribes or Alaska Native villages or 
regional or village corporations, pursuant to the Intergovernmental 
Personnel Act (5 U.S.C. 3372), to act as agents or attorneys for, or 
appear on behalf of, such tribes or Alaska Native villages or 
corporations in connection with any matter pending before any 
department, agency, court, or commission, in which the United States is 
a party or has a direct and substantial interest. Such employees must 
advise, in writing, the head of the agency, with which they are dealing 
on behalf of an Indian tribe or Alaska Native village or corporation, 
of any personal and substantial involvement they may have had as an 
officer or employee of the United States in connection with the matter 
concerned.

[FR Doc. 96-19173 Filed 7-29-96; 8:45 am]
BILLING CODE 4150-04-M