[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45760-45762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21662]



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LEGAL SERVICES CORPORATION
45 CFR Part 1640


Application of Federal Law to LSC Recipients

AGENCY: Legal Services Corporation.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule implements a provision in the Legal Services 
Corporation's (``Corporation'' or ``LSC'') FY 1996 appropriations act 
which subjects LSC recipients to Federal law relating to the proper use 
of Federal funds. This rule identifies applicable Federal law and sets 
out the mechanism by which recipients must agree to be subject to such 
law and the consequences of a violation of the law. Although this rule 
is effective upon publication, the Corporation also solicits public 
comment on the interim rule in anticipation of adoption of a final rule 
at a later time.

DATES: This interim rule is effective on August 29, 1996. Comments must 
be submitted on or before October 28, 1996.

ADDRESSES: Comments should be submitted to the Office of the General 
Counsel, Legal Services Corporation, 750 First St NE., 11th Floor, 
Washington, DC 20002-4250.

FOR FURTHER INFORMATION CONTACT: Victor M. Fortuno, General Counsel, 
(202) 336-8910.

SUPPLEMENTARY INFORMATION: On May 19, 1996, the Operations and 
Regulations Committee (``Committee'') of the LSC Board of Directors 
(``Board'') requested the LSC staff to prepare an interim rule to 
implement Sec. 504(a)(19) of Public Law 104-134, 110 Stat. 1321(1996), 
the Corporation's FY 1996 appropriations act, which requires LSC-funded 
recipients to agree by contract that, with regard to their use of LSC 
funds, they will be subject to Federal law related to the proper use of 
Federal funds. The Committee held hearings on staff proposals on July 9 
and 19, and the Board adopted this interim rule on July 20 for 
publication in the Federal Register. The Committee recommended and the 
Board agreed to publish this rule as an interim rule. An interim rule 
is necessary in order to provide prompt and critically necessary 
guidance to LSC recipients on legislation which is already effective 
and which carries strong penalties for noncompliance. Because of the 
great need for guidance on how to comply with substantially revised 
legislative requirements, prior notice and public comment are 
impracticable, unnecessary, and contrary to the public interest. See 5 
U.S.C. 553(b)(3)(B) and 553(d)(3). Accordingly, this rule is effective 
upon publication.
    However, the Corporation also solicits public comment on the rule 
for review and consideration by the Committee. The Committee intends to 
hold public hearings to discuss written comments and hear oral 
comments. It is anticipated that a final rule will be issued which will 
supersede this interim rule.
    Briefly, this rule requires LSC recipients to agree to be subject 
to ``Federal laws relating to the proper use of Federal funds'' in 
their use of LSC funds. This rule puts recipients and their employees 
on notice that LSC funds are Federal funds for the purposes of the 
applicable Federal laws cited in this rule and that a violation of such 
laws would subject the recipient or individual employee to potentially 
serious sanctions.
    A section by section analysis of this interim rule is provided 
below.

Section 1640.1  Purpose

    The purpose of this rule is to ensure that recipients' LSC funds 
are considered Federal funds for the purposes of Federal law relating 
to the proper use of Federal funds. This rule also identifies 
applicable Federal laws and delineates the consequences to the 
recipient of violations of such law.

Section 1640.2  Definitions

    The statutory restriction provides that recipients must 
contractually agree to be subject to ``all provisions of Federal law 
relating to the proper use of Federal funds'' with regard to their use 
of LSC funds. The regulation interprets this to mean that, with respect 
to their LSC funds, all programs should be subject to Federal laws 
which address issues of waste, fraud and abuse of Federal funds. The 
legislative history limits the applicable laws to those dealing with 
waste, fraud and abuse and specifically names the laws which apply. The 
House Report for H.R. 2076, an earlier unsuccessful effort to enact a 
provision similar to the provision that was ultimately enacted, states:

    [S]ection 504(2) requires all programs receiving Federal funds 
to comply with Federal statutes and regulations governing waste, 
fraud, and abuse of Federal funds.

H. Rep. No. ____, 104th Cong., 1st Sess. 116 (July 1995). See also the 
McCollum/Stenholm bill (HR 1806), a recent effort to amend the LSC Act, 
which expressly cites most of the laws included in this part. Other 
laws have been added after consultation with the Corporation's Office 
of the Inspector General, one of whose statutory mandates is to prevent 
the misuse of LSC funds.
    The relevant laws are listed in the definition of ``Federal law 
relating to the proper use of Federal funds'' in paragraph (a)(1) of 
this section. Generally, such laws deal with the bribery of public 
officials or witnesses; the embezzlement or theft of federal funds; 
attempts to defraud the government; the obstruction of federal audits; 
and making false statements and claims to the Federal government. One 
exception makes it clear that qui tam actions authorized by section 
3730(b) of Title 31 may not be brought against the Corporation, any 
recipient, subrecipient, grantee, or contractor of the Corporation, or 
any employee thereof.
    Paragraph (a)(2) clarifies that for the purposes of the laws cited 
in paragraph (a)(1), the Corporation shall be considered a Federal 
agency and its funds shall be considered to be Federal funds provided 
by grant or contract.
    Paragraph (b) of this section defines the meaning of a ``violation 
of the agreement.'' A violation of a recipient's agreement to be 
subject to Federal law related to the proper use of Federal funds could 
occur in either of two ways. First, there would be a violation if the 
recipient were convicted of or judgment were entered against it for a 
violation of any of the relevant Federal laws by the Federal court 
having jurisdiction of the matter, and all appeals were final or the 
time to file for an appeal had expired.
    Second, there would be a violation if an employee or board member 
of the recipient were convicted of a violation of the enumerated laws 
and the Corporation found that responsibility for the offense should be 
imputed to the recipient because the recipient had knowingly or through 
gross negligence allowed the illegal activities to occur.

Section 1640.3  Contractual Agreement

    This section implements the statutory requirement that, as a 
condition of receiving a grant or contract with the Corporation, 
recipients must enter into a contractual agreement that, in regard to 
LSC funds, they will be subject to Federal law relating to the proper 
use of Federal funds in regard to LSC funds. The Federal laws in 
question normally apply to Federal agencies and Federal funds. Because 
the Corporation is not a Federal agency, it was necessary for Congress 
to provide in Sec. 504(a)(19) of its FY 1996 appropriations act that, 
for purposes of the application of these laws to recipients, the 
Corporation shall be considered to be a Federal agency and all funds 
provided by the Corporation shall be Federal funds provided by grant or 
contract. This

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language authorizes the application to the Corporation's recipients of 
Federal law on the proper use of Federal funds.
    This provision also requires that the agreement include a statement 
that the recipient's employees and board members have been informed of 
the applicable Federal laws and the potential consequences to them both 
personally and to the recipient if the law is violated. Thus, 
recipients should familiarize their staff and board with the Federal 
laws listed in this part and the significance of the agreement made by 
the recipient. The agreement and Sec. 504(a)(19) mean that, in regard 
to its LSC funds, the recipient, its board members, and its employees 
could be subject to Federal criminal prosecution and civil false claims 
liability for a violation of the Federal statutes listed in this part.
    Recipients should also be mindful of the fact that the 
Corporation's Office of the Inspector General has statutory 
responsibility to investigate the activities covered by the Federal 
laws listed in this part. Although the agreement would apply only to 
LSC funds, recipients are also reminded that the Corporation's 
Inspector General investigates reports of possible theft or 
misappropriation of a recipient's non-LSC funds as well as its LSC 
funds and would report any such thefts or misappropriations that it 
found to the appropriate Federal or State authorities.

Section 1640.4  Violation of Agreement

    Paragraph (a) provides that a violation of the agreement as defined 
in this part would render a recipient's grant or contract terminated by 
the Corporation. Section 504(a)(19) clearly evidences Congressional 
intent that a recipient's funding be terminated if there is a violation 
of the applicable Federal law. Because a violation pursuant to 
Sec. 1640.2(b)(1) requires a recipient to have been found by a court of 
law to have violated the applicable Federal law, the Corporation would 
not be obligated to provide a termination hearing. For a 
Sec. 1640.2(b)(2) violation, on the other hand, prior to any 
termination, the Corporation would be obligated to provide notice and 
an opportunity to be heard for the sole purpose of determining whether 
a recipient knowingly or through gross negligence allowed the illegal 
activities to occur. Once a final decision has been made to imput 
responsibility for the violation to the recipient, the law requires 
that the grant or contract be terminated by the Corporation.
    In any case, the Corporation has the authority and responsibility 
to take the steps necessary to safeguard its funds.

Section 1640.5  Reporting Requirement

    This section requires a recipient to give telephonic or other 
actual notice to the Corporation within two (2) working days when the 
recipient or any of its employees or board members have been charged 
with a violation of any of the Federal laws listed in Sec. 1640.2(a). 
It also clarifies that ``charged with a violation'' means that an 
individual or governmental entity having authority to initiate such 
proceedings has initiated action against the recipient or its employees 
or board members and the proceeding is pending. A recipient must also 
give the Corporation notice within two (2) days if it has reason to 
believe that any of its employees or board members have misused LSC 
funds under this part. Finally, this section requires a recipient to 
follow up the telephonic or other actual notice with a written notice 
within ten (10) calendar days.

List of Subjects in 45 CFR Part 1640.

    Fraud; Grant programs-law; Legal services.

    For reasons set forth in the preamble, 45 CFR Chapter XVI is 
amended by adding part 1640 as follows:

PART 1640--APPLICATION OF FEDERAL LAW TO LSC RECIPIENTS

Sec.
1640.1  Purpose.
1640.2  Definitions.
1640.3  Contractual agreement.
1640.4  Violation of agreement.
1640.5  Reporting requirement.

    Authority: Pub. L. 104-134, 110 Stat. 1321.


Sec. 1640.1  Purpose.

    The purpose of this rule is to ensure that recipients use their LSC 
funds in accordance with Federal law related to the proper use of 
Federal funds. This rule also identifies the Federal laws which apply 
and provides notice of the consequences to a recipient of a violation 
of such Federal laws by recipients, its employees or board members.


Sec. 1640.2  Definitions.

    (a) (1) Federal law relating to the proper use of Federal funds 
means:
    (i) 18 U.S.C. 201 (Bribery of Public Officials and Witnesses);
    (ii) 18 U.S.C. 286 (Conspiracy to Defraud the Government With 
Respect to Claims);
    (iii) 18 U.S.C. 287 (False, Fictitious or Fraudulent Claims);
    (iv) 18 U.S.C. 371 (Conspiracy to Commit Offense or Defraud the 
United States);
    (v) 18 U.S.C. 641 (Public Money, Property or Records);
    (vi) 18 U.S.C. 1001 (Statements or Entries Generally);
    (vii) 18 U.S.C. 1002 (Possession of False Papers to Defraud the 
United States);
    (viii) 18 U.S.C. 1516 (Obstruction of Federal Audit);
    (ix) 31 U.S.C. 3729 (False Claims);
    (x) 31 U.S.C. 3730 (Civil Actions for False Claims), except that 
actions that are authorized by Sec. 3730(b) of such title to be brought 
by persons may not be brought against the Corporation, any recipient, 
subrecipient, grantee, or contractor of the Corporation, or any 
employee thereof;
    (xi) 31 U.S.C. 3731 (False Claims Procedure);
    (xii) 31 U.S.C. 3732 (False Claims Jurisdiction); and
    (xiii) 31 U.S.C. 3733 (Civil Investigative Demands).
    (2) For the purposes of the laws listed in paragraph (a)(1), LSC 
shall be considered a Federal agency and a recipient's LSC funds shall 
be considered to be Federal funds provided by grant or contract.
    (b) A violation of the agreement means:
    (1) That the recipient has been convicted of, or judgment has been 
entered against the recipient for, a violation of any of the laws 
listed in Sec. 1640.2(a)(1), with respect to its LSC grant or contract, 
by the court having jurisdiction of the matter and any appeals of the 
conviction or judgment have been exhausted or the time for the appeal 
has expired; or
    (2) An employee or board member of the recipient has been convicted 
of, or judgment has been entered against the employee or board member 
for, a violation of any of the laws listed in Sec. 1640.2(a)(1) with 
respect to a recipient's grant or contract with LSC by the court having 
jurisdiction of the matter, and any appeals of the conviction or 
judgment have been exhausted or the time for appeal has expired, and 
the Corporation finds that the recipient has knowingly or through gross 
negligence allowed the employee or board member to engage in such 
activities.


Sec. 1640.3  Contractual agreement.

    As a condition of receiving LSC funds, a recipient must enter into 
a written contractual agreement with the Corporation that, with respect 
to its LSC funds, it will be subject to the Federal laws listed in 
Sec. 1640.2(a)(1). The agreement shall include a statement that all of 
the recipient's employees and board members have been informed of such 
Federal law and of the consequences of a violation of such law,

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both to the recipient and to themselves as individuals.


Sec. 1640.4  Violation of agreement.

    (a) A violation of the agreement under Sec. 1640.2(b)(1) shall 
result in the recipient's LSC grant or contract being terminated by the 
Corporation without need for a termination hearing. During the pendency 
of any appeal of a conviction or judgment, the Corporation may take 
such steps as it determines necessary to safeguard its funds.
    (b) A violation of the agreement under Sec. 1640.2(b)(2) shall 
result in the recipient's LSC grant or contract being terminated by the 
Corporation. Prior to such termination, the Corporation shall provide 
notice and an opportunity to be heard for the sole purpose of 
determining whether the recipient knowingly or through gross negligence 
allowed the employee or board member to engage in the activities which 
led to the conviction or judgment. During the pendency of any appeal of 
a conviction or judgment or during the pendency of a termination 
hearing, the Corporation may take such steps as it determines necessary 
to safeguard its funds.


Sec. 1640.5  Reporting requirement.

    (a) The recipient shall give telephonic or other actual notice to 
the Corporation within two (2) working days of the date that:
    (1) The recipient or any of the recipient's employees has been 
charged with a violation of any of the Federal laws listed in 
Sec. 1640.2(a) with respect to its LSC funds; or
    (2) It has reason to believe that any of its employees or board 
members have misused the recipient's LSC funds in violation of any of 
the Federal laws listed in Sec. 1640.2(a).
    (b) The notice required in paragraph (a) of this section shall be 
followed by written notice within ten (10) calendar days.
    (c) A recipient or an employee or board member of the recipient has 
been ``charged with a violation'' when a governmental entity having 
authority to initiate such a proceeding has instituted action against 
the recipient or the recipient's employee and the proceeding is 
pending.

    Dated: August 20, 1996.
Suzanne B. Glasow,
Senior Counsel for Operations & Regulations.
[FR Doc. 96-21662 Filed 8-28-96; 8:45 am]
BILLING CODE 7050-01-P