[Federal Register Volume 64, Number 83 (Friday, April 30, 1999)]
[Rules and Regulations]
[Pages 23165-23174]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10736]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 64, No. 83 / Friday, April 30, 1999 / Rules 
and Regulations  

[[Page 23165]]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 271, 278 and 279

RIN 0584-AC46


Food Stamp Program: Retailer Integrity, Fraud Reduction and 
Penalties

AGENCY: Food and Nutrition Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The purpose of this final rule is to implement the Food Stamp 
Program retailer provisions included in the Personal Responsibility and 
Work Opportunity Reconciliation Act of 1996, as well as the retailer 
provision included in the Federal Agriculture Improvement and Reform 
Act. This rule also contains a number of amendments to the current 
regulations to streamline the regulations. Most of the provisions in 
this final rule are nondiscretionary and required by law. The intent of 
this rule is to strengthen integrity and eliminate fraud in the Food 
Stamp Program by: ensuring that only legitimate stores participate in 
the program; improving the Department's ability to monitor authorized 
firms; and strengthening the penalties against firms which violate 
program rules.

EFFECTIVE DATES: The amendments in this rule at Sec. 271.2, 
Sec. 278.6(a), Sec. 278.6(b)(2)(i), Sec. 278.6(c), Sec. 278.8(a), 
Sec. 279.7(a), and Sec. 279.10(d) were effective August 22, 1996. All 
other amendments in this rule are effective June 1, 1999.

FOR FURTHER INFORMATION CONTACT: Questions regarding this final rule 
should be addressed to Thomas O' Connor, Director, Benefit Redemption 
Division, Food Stamp Program, Food and Nutrition Service, 3101 Park 
Center Drive, Alexandria, Virginia 22302, or by telephone at (703) 305-
2418.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be not significant under 
Executive Order 12866.

Executive Order 12372

    The Food Stamp Program (FSP) is listed in the Catalog of Federal 
Domestic Assistance under No. 10.551. For the reasons set forth in the 
final rule and related notice(s) to 7 CFR Part 3015, Subpart V (48 FR 
29115, June 24, 1983), this program is excluded from the scope of 
Executive Order 12372, which requires intergovernmental consultation 
with State and local officials.

Regulatory Flexibility Act

    This final rule has been reviewed with regard to the requirements 
of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Samuel 
Chambers, Jr., the Administrator of the Food and Nutrition Service 
(FNS), has certified that this rule does not have a significant 
economic impact on a substantial number of small entities. This rule 
may have an effect on a limited number of retail food stores and other 
entities that are shown to be negligent in effectuating the purposes of 
the FSP by committing violations or fraud in the program. However, we 
do not believe this will have a significant effect on most small 
businesses.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, the 
proposed rule included a notice that announced our intent to submit 
revised application procedures and associated burden estimates to OMB 
for approval relative to the application(s) completed by retail food 
stores and meal service providers to request authorization and/or 
continued authorization to participate in the FSP.
    There are three application forms used by firms that wish to 
participate in the program. These are the FNS-252, Food Stamp 
Application For Stores; the FNS-252R, Food Stamp Program Application 
for Stores-Reauthorization; and the FNS-252-2, Application to 
Participate in the Food Stamp Program for Communal Dining Facility/
Others. These forms and associated burden hours have been approved by 
OMB under OMB No. 0584-0008 through October 31, 1999. The revisions to 
the authorization process contained in Sec. 278.1(a) of this final rule 
do not impose new information collection, reporting or recordkeeping 
requirements.
    The existing burden estimates, as approved by OMB through October 
1999, are shown on the following chart:
    Affected Public: Food Retail and Wholesale Firms, Meal Service 
Programs, certain types of Group Homes, Shelters, and State-contracted 
Restaurants.
    Estimated Number of Respondents: 68,770.
    Estimated Number of Responses per respondent: 1.
    Estimated Time per Response: 0.229416; rounded to .23.
    Estimated Total Annual Burden: 15,777.

                                Approved Burden for Forms FNS-252, 252-2 and 252R
----------------------------------------------------------------------------------------------------------------
                                     Number of     Responses per   Total annual    Burden hours    Total annual
              Title                 respondents     respondent       responses     per response    burden hours
----------------------------------------------------------------------------------------------------------------
FORM FNS-252....................          22,807               1          22,807           .4500          10,263
FORM FNS-252-2..................           1,803               1           1,803           .2000             361
FORM FNS-252R...................          44,160               1          44,160           .1167           5,153
                                 -------------------------------------------------------------------------------
    Totals......................          68,770  ..............          68,770             .23          15,777
----------------------------------------------------------------------------------------------------------------


[[Page 23166]]

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rule is intended to have preemptive effect 
with respect to any State or local laws, regulations or policies which 
conflict with its provisions or which would otherwise impede its full 
implementation. This rule is not intended to have retroactive effect 
except as specified in the ``Effective Date'' paragraph of this 
preamble. Prior to any judicial challenge to the provisions of this 
rule or the application of its provisions, all applicable 
administrative procedures must be exhausted. In the FSP, the 
administrative procedures are as follows: (1) for Program benefit 
recipients--State administrative procedures issued pursuant to 7 U.S.C. 
2020 (e)(10) and 7 CFR 273.15; (2) for State agencies--administrative 
procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 ( 
for rules related to non-quality control (QC) liabilities) or 7 CFR 
part 283 (for rules related to QC liabilities); (3) for program 
retailers and wholesalers--administrative procedures issued pursuant to 
7 U.S.C. 2023 set out at 7 CFR 278.8.

Unfunded Mandate Reform Act of 1995

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L. 
104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local and tribal 
governments, and the private sector. Under section 202 of the UMRA, FNS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local or tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. When such a statement is needed for a rule, section 205 of 
the UMRA generally requires FNS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule. This final rule contains no Federal mandates 
under the regulatory provision of Title II of the UMRA for State, local 
and tribal governments or the private sector of $100 million or more in 
any one year. Thus, this rule is not subject to the requirements of 
sections 202 and 205 of the UMRA.

Background

    The Personal Responsibility and Work Opportunity Reconciliation Act 
of 1996, Pub. L. 104-193, (PRWORA) was enacted on August 22, 1996, and 
contained a number of provisions directly affecting the participation 
of retailers, wholesalers and other entities eligible to be authorized 
to participate in the FSP. All of the provisions of the law addressed 
in this rulemaking were effective on the date of enactment. Five of the 
provisions are nondiscretionary and were immediately implemented in the 
program through an implementing memorandum issued on September 16, 
1996. These five provisions are incorporated into this final rule and 
they are identified as nondiscretionary in this preamble. Such 
nondiscretionary provisions are statutory requirements that the 
Secretary has no authority to change; therefore, such provisions or 
their implementation may not be modified by public comment. PRWORA 
provides discretion in the implementation of the remaining provisions 
of the law, and these provisions were proposed for public comment in 
the rule published on May 6, 1998. The Department encouraged all 
interested parties to comment on the discretionary provisions as set 
forth in the proposed rule. Four substantive comments were received 
from retail trade/interest groups, WIC State administering agencies and 
the headquarters of a large retail food chain. In addition, 187 
identical letters referring to and expressing agreement with the 
comment sent by the aforementioned retail food chain headquarters were 
received.
    This final rulemaking includes the following discretionary and 
nondiscretionary provisions:
     Revision in the definition of ``coupon'' 
(nondiscretionary);
     Establishment of a minimum six month waiting period before 
stores that initially fail to meet authorization criteria can reapply 
to participate in the program (nondiscretionary), and the establishment 
of longer periods of time, including permanent prohibition from 
participation, which reflects the severity of the basis for the denial 
of the firm's application or a firm's reauthorization in the program 
(discretionary);
     Authority for USDA, or its designees, to conduct 
preauthorization visits to applicant firms as specified by the 
Secretary (discretionary);
     Authority for USDA to disqualify firms based on 
inconsistent redemption data and suspicious account activity as 
documented through EBT system data (nondiscretionary);
     Authority to suspend the program participation of 
violating firms subject to a permanent disqualification pending the 
outcome of administrative or judicial review (nondiscretionary);
     Authority for USDA to establish authorization periods for 
the participation of retailers in the program (discretionary);
     Authority to disqualify retailers who intentionally submit 
falsified applications, including permanent disqualification of such 
retailers (discretionary); and,
     Authority to disqualify retailers that have been 
disqualified by State agencies responsible for the administration of 
USDA's Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC) (discretionary), extension of the periods for 
disqualification of such FSP retailers and elimination of the FSP 
administrative and judicial review rights of such retailers 
(nondiscretionary).
    This final rulemaking also includes a provision of the Federal 
Agriculture Improvement and Reform Act, Pub. L. 104-127, (FAIR), which 
provides a limitation on the mandatory permanent disqualification 
actions that may be taken by USDA for retailers found to be 
trafficking. Conforming and minor editorial revisions in response to 
the National Performance Review Regulatory Planning and Reform 
Initiative are also included in this rule.

FAIR Provision--Eligibility for Trafficking Civil Money Penalties

    Section 401 of the FAIR limits mandatory permanent 
disqualifications for food coupon trafficking (with no possibility of 
avoiding disqualification by paying a trafficking civil money penalty) 
to instances in which: (1) owners are aware of violations or 
participate in the conduct of such food coupon trafficking violations 
or (2) it is the second investigation in which a trafficking violation 
was committed by firm management.
    This provision amends the current automatic ineligibility of a firm 
for a civil money penalty (CMP) in lieu of permanent disqualification 
if the ownership or management of the firm was aware of, approved, 
benefited from or was involved in the conduct of the food coupon 
trafficking violations (Sec. 278.6(i)). The FAIR amendment expands the 
number of firms that may be eligible for such a CMP in lieu of 
permanent disqualification. The law provides that if such a violation 
represents first-time management food coupon trafficking, the firm may 
be considered eligible for the imposition of a CMP, if the firm 
documents that it meets all of the eligibility requirements for the CMP 
as specified in Sec. 278.6 (i).

[[Page 23167]]

However, the expansion of eligibility for a CMP in lieu of permanent 
disqualification, as stipulated in the FAIR, does not apply to firms 
where it is shown that ownership or management was involved in 
trafficking in ammunition, firearms, explosives or controlled 
substances.
    The May 6,1998 rule proposed that the provision be applicable to 
firm management in general, regardless of whether or not the same 
individual manager committed trafficking violations previously. For 
example, if an individual manager previously was dismissed from the 
position for committing trafficking violations, but a different manager 
of the same firm subsequently commits food coupon trafficking 
violations, the firm would not be eligible for a second CMP in lieu of 
permanent disqualification.
    This provision was effective on April 4,1996, the date of enactment 
of the statute. It was implemented upon the date on which FNS offices 
received the implementing memorandum, and is applicable to all firms 
issued a final determination letter subsequent to receipt of the 
implementing memorandum by FNS offices. The implementing memorandum was 
issued on September 16,1996. The amendment made to Sec. 278.6(i) of 
this regulation reflects this change. Comments were invited, however, 
on the proposed restriction which prohibits a CMP in lieu of permanent 
disqualification the second time management personnel of a firm commit 
trafficking violations, regardless of whether it was the same person in 
the management position that committed the previous violation(s). No 
comments were received on this issue; therefore, this provision of the 
rule is finalized as proposed.
    One commentor did, however, indicate that if the owner/operator or 
firm management was unaware and uninvolved with the trafficking 
violations, the firm should be eligible for a CMP in lieu of permanent 
disqualification. Firms are currently provided this opportunity in 
accordance with the Food Stamp Act of 1977, as amended (FSA), and the 
criteria outlined in Sec. 278.6(i) of the regulations, and will 
continue to be provided this opportunity. Therefore, it appears that 
the commentor misunderstood the amendment made to the current 
provision. Moreover, the Department wishes to reiterate that the 
nondiscretionary provision included here expands eligibility of 
participating firms for a CMP in lieu of permanent disqualification for 
trafficking in the program.

Provisions of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 (PRWORA)

    The provisions of PRWORA related to retailer participation in the 
FSP represent a three-tiered approach to enhancing retailer compliance 
and integrity in order to further the purposes of the FSP and to reduce 
fraud in this critically important domestic food program. The 
provisions greatly reinforce USDA's efforts to effectively administer 
the FSP by improving the ability of the Department to screen applicant 
retailers prior to authorization, to control retailer performance 
subsequent to FSP authorization and to impose stiffer penalties against 
those firms found to be violating the public trust by committing FSP 
violations and defrauding the program. All commentors expressed 
agreement with these premises.

Pre-Authorization Screening

    The participation of retailers in the FSP is a privilege, not a 
right. The PRWORA and the provisions of this final rulemaking will 
serve to increase the Department's ability to cut off fraud and abuse 
at the source by allowing more in-depth preauthorization screening of 
applicant firms and verification of the qualifications and continued 
eligibility of currently authorized firms to participate in the FSP.

Condition Precedent for Approval of Retail Food Stores and Wholesale 
Food Concerns

    Section 831 of the PRWORA provides authority for USDA, its designee 
or State or local government officials designated by the Department, to 
conduct preauthorization visits to selected firms. This provision also 
gives discretion to the Secretary to designate such firms on the basis 
of size, location and types of items sold. Amendments to Sec. 278.1(a) 
of the regulation reflect the Secretary's authority to conduct such 
preauthorization visits as contained in the statute.
    Two comments were received on this provision. One commentor urged 
that history and longevity in the FSP should also be considered when 
making decisions regarding store visits. The Department agrees that 
other factors, such as those suggested with regard to history and 
longevity in the program, are appropriate to consider when prioritizing 
the conduct of store visits. The Department agrees that such factors 
will be taken into consideration when establishing store visit 
priorities.
    A second commentor took exception with the provision as written in 
that they felt the regulation should be more prescriptive with regard 
to store visit criteria. The commentor suggested that the Department 
annually provide for a notice and comment rulemaking on how it intends 
to implement its authority to conduct store visits.
    The Department has long had the authority to visit authorized and 
applicant firms in order to assess the eligibility of such firms for 
authorization in the program. The Department also has the discretion to 
prioritize the types of firms that will be visited based on its own 
assessment of Departmental resources, as well as upon review of areas 
of vulnerability in the operation of the program as defined by 
management information sources. Therefore, the provisions of this final 
rule with regard to the store visit provision remain as proposed.

Waiting Period for Firms That Fail To Meet Authorization Criteria

    Section 834 of the PRWORA amends section 9(d) of the Food Stamp Act 
to require that a firm that does not qualify for authorization because 
the firm fails to meet the eligibility criteria for approval be 
prohibited from submitting a new application to participate in the FSP 
for a minimum period of 6 months. The statute also allows the Secretary 
to establish longer time periods, including a permanent prohibition 
from participation, that is reflective of the severity of the basis for 
the denial of the application.
    Section 278.1(k) of the regulation was proposed to be revised to 
include the minimum 6-month prohibition from reapplication, which 
applies to those firms that are shown not to meet Criterion A or of the 
eligibility requirements of the FSA, (7 U.S.C. 2012(k)) and, for co-
located wholesale/retail firms, the requirements of 
Sec. 278.1(b)(1)(iv). Criteria A and B were incorporated into the 
definition of ``retail food store'' in the FSA, as amended by the Food 
Stamp Program Improvements Act of 1994, Pub. L. 103-225. While this 
change in the definition was effective immediately upon enactment of 
the law and has been implemented, a final rule incorporating this 
statutory change specifically in the regulations is currently in 
Departmental clearance.
    As discussed in the preamble to the rule proposed on May 6,1998, 
prior to the passage of PRWORA, there was no waiting period for stores 
that wished to reapply to participate in the FSP after their 
application was denied because the stores failed to meet basic 
eligibility criteria for authorization. Such stores could adjust the 
types of staple food

[[Page 23168]]

items that they offered for sale in order to meet minimal standards and 
reapply immediately, and then decrease their inventory after obtaining 
authorization. Such firms tend to be stores that do not effectuate the 
purpose of the FSP. As proposed, this final rule provision applies to 
initial applicants as well as to those firms being reviewed for the 
purpose of reauthorization, or any other purpose, that are found not to 
meet program eligibility requirements. At the time of initial 
application and reauthorization, firms will be provided notice of this 
provision. The 6-month minimum prohibition is nondiscretionary.
    One commentor asserted that such waiting periods should not be 
applicable to firms seeking reauthorization in the program, indicating 
that the statute does not extend the authority to apply such periods to 
such firms. The Department disagrees with the commentor. The waiting 
periods apply to all firms that apply to participate or apply to 
continue to participate in the program.
    The proposed rule also included provisions to implement the 
Secretary's authority to establish longer periods of time during which 
a firm would be restricted from reapplying for program authorization. 
Section 834 of PRWORA provides that the Secretary may establish these 
time periods, including permanent denial of a firm's ability to be 
authorized in the program, depending upon the severity of the reason 
for the denial of such a firm's initial or subsequent application for 
authorization or reauthorization. Section 278.1(b)(3) of this final 
rule sets out the criteria that are to be used by FNS to make 
determinations regarding reapplication restrictions against firms that 
are denied authorization or reauthorization, or are otherwise withdrawn 
from the program. In addition, Sec. 278.1(k) details the periods of 
time for which a firm will be denied authorization in the program in 
response to the criteria set out in Sec. 278.1(b)(3). These provisions 
are applicable to denials of initial authorization and reauthorization 
in the FSP, as well as to the continued authorization of a firm for 
participation in the program.
    Section 9 of the FSA provides the Secretary with the authority to 
consider the business integrity and reputation of program applicants 
when determining the qualifications of such applicants for 
participation in the program. The business integrity of a firm is 
critically important to the effective operation of the FSP.
    Two comments were received on the proposed provision dealing with 
the business integrity standards. These comments expressed concern that 
the standards proposed in the May 6, 1998 rule were very broad. In 
particular, the commentors suggested that applying business integrity 
standards to non-managerial employees of participating firms was, in 
essence, ``casting too wide a net'' in terms of corporate 
responsibility and liability. These commentors further suggested that 
the FNS proposal assumes that store owners have inexpensive, efficient 
means of discovering past misconduct of non-managerial employees, which 
they do not. Commentors indicated that discharging employees or not 
hiring a prospective employee for a non-company, non-FSP related issue 
could subject the employer to FNS penalties if the employee is kept on 
board, but could lead to potential lawsuits or union problems if the 
employee is discharged. Finally, commentors noted that the proposed 
business integrity standards were too broad, too vague and offer too 
much discretion to FNS Officers in Charge to interpret.
    In response to these comments, the provisions have been revised in 
this final rule. First, the standards no longer include references to 
the business integrity of non-owner or non-managerial personnel. 
However, the criteria in this final rulemaking still focus on the 
business integrity and reputation of the ownership and management of 
those firms seeking authorization or reauthorization in the program. 
Fraudulent activity in the FSP or other government programs, or in 
business-related activities in general, reflects on the ability of a 
firm to effectuate the purposes of the FSP and abide by the rules 
governing the program. The Department has refined the business 
integrity criteria in this final rule and believes that the standards 
included here are appropriate when assessing the business integrity of 
a firm.
    This rulemaking provides that a firm be permanently denied the 
opportunity for reapplication if a firm is denied authorization or 
reauthorization in the program on the basis of criminal convictions or 
a finding of civil liability of the ownership or management of an 
applicant firm for reasons that affect the business integrity of such 
firms. As provided in this final rule, business integrity matters that 
fall under this category include conviction or civil judgment for 
offenses such as: embezzlement, theft, forgery, bribery, false 
statements, receiving stolen property, false claims, or obstruction of 
justice; commission of fraud in connection with obtaining, attempting 
to obtain, or performing a public or private agreement or transaction; 
and violation of Federal, State and/or local consumer protection laws 
or other laws relating to alcohol, tobacco, firearms, controlled 
substances and/or gaming licenses.
    This final rule retains the proposed provision that firms removed 
for administrative reasons from Federal, State or local programs shall 
be prohibited from applying for the FSP during the period of removal 
from such programs. Such action in the FSP would be taken, for example, 
if a firm is removed from another federal program, or had their State 
or local liquor or lottery license suspended.
    In response to two comments received, the final rule has been 
revised to refine the proposal in that firms which have administrative 
findings brought against them by Federal, State or local officials that 
do not give rise to removal from such programs, but for which FNS 
determines a pattern exists evidencing a lack of business integrity, 
shall be prohibited from applying for the FSP for one year, effective 
from the date of denial in the program. The proposed rule originally 
stipulated that such firms would be denied authorization in the FSP for 
3 years and included violations committed by personnel of the firm. 
This final rule applies this provision only if such violations are 
committed by the owner, officer, or manager of a firm. Moreover, this 
final rule provides that a ``pattern evidencing a lack of business 
integrity'' means 3 or more instances of noncompliance with other 
Federal, State or local program requirements. For example, if a firm 
was fined for liquor license infractions committed by an owner, officer 
or manager, and 3 such fines were imposed over a period of time, action 
to suspend the firm from applying to the FSP would be taken.
    The final rule retains the proposed provision that firms that 
attempt to circumvent a period of disqualification, a civil money 
penalty, or a fine imposed for FSP violations shall be denied the 
opportunity to apply for the program for a period of 3 years.
    Further, this rulemaking at Sec. 278.1(b)(3)(iv) retains the 
provision of the proposed rule that firms in which violations of the 
FSP have been administratively and/or judicially established but a 
sanction has not been served, shall be denied the opportunity to apply 
for the program for a period of time equivalent to the appropriate 
sanction period that should have been served. This provision would 
apply, for

[[Page 23169]]

example, when a firm goes out of business prior to FNS' sanctioning the 
firm for FSP violations that were uncovered prior to its going out of 
business. If the same owner seeks authorization for a different store, 
such a store would not be immediately authorized in the FSP and would 
be subject to a waiting period equivalent to the period of time that 
the previously-investigated firm under that ownership would have been 
disqualified. This waiting period would be applicable whether or not 
the previously-investigated firm was authorized in the FSP or was an 
unauthorized firm found to be violating the FSP.
    This provision also applies to persons who are owners or officers 
of multi-unit firms, as well as managers who are employed by the owner 
of a multi-unit firm. If an owner or officer of a multi-unit firm 
personally committed FSP violations at one unit of a multi-unit firm, 
and a sanction was not served, this rule finalizes that an applicant 
firm under that same ownership would be denied authorization for a 
period of time that should have been served for the previously 
committed violations. Moreover, as currently provided in the FSP 
regulations, the authorization of other units of such multi-unit firms 
may be withdrawn in response to violations of the FSP by ownership.
    If management personnel of such multi-unit firms commit 
sanctionable violations at more than one location, this would indicate 
that such actions are reflective of the overall operating practice of 
the firm, thus indicating a lack of business integrity on the part of 
ownership. If such violations occur and an appropriate penalty was not 
served, the applicant firm will be denied or restricted from applying 
for authorization in the FSP for the period of time that should have 
been served by the firm for violations committed at these other 
locations under the same ownership. The period would be equivalent to 
the longest sanction period that would have been served for the most 
serious of violations committed by any one of the associated firms.
    Finally, this final rule modifies the proposed rule with regard to 
other evidence reflecting on business integrity. One commentor believed 
that the provision as proposed was very broad. Therefore, this final 
rule refines the provision by stipulating that a one year period of 
denial in the program would result from the commission of any other 
offense (other than convictions, judgments, removal or patterns of 
noncompliance) which: (1) Reflects negatively on the business integrity 
or business honesty of the owners, officers or managers of a firm; and 
(2) seriously and directly affects the present responsibility of a 
person.
    The proposal also made an editorial change, unrelated to PRWORA's 
provisions, to conform the language of Sec. 278.1(k), Denying 
authorization and Sec. 278.1(l), Withdrawing authorization. A further 
editorial change was made to Sec. 278.1(m) so as to conform this 
section with Sec. 278.1(k) and Sec. 278.1(l). These revisions do not 
result in any substantive change in the program, but simply clarify the 
intent that the provisions are applicable to both denials and 
withdrawals in the program. In addition, language was added in 
Sec. 278.1(k) and Sec. 278.1(l) of this rule to reflect the current 
prohibition against participation in the program as specified in the 
current rule at Sec. 278.6(f)(4), which prohibits authorization for 
participation of firms that have outstanding transfer of ownership 
civil money penalties owed to FNS. This final rule implements these 
changes as proposed.

Authority To Establish Authorization Periods

    Section 832 of PRWORA provides authority for the Secretary to 
establish specific time periods during which a firm may be authorized 
to accept food stamps. The intent of this provision is to eliminate the 
current open-ended authorization of firms in the program.
    It was proposed that no firm be assigned an authorization period 
for participation in the FSP for longer than five years. Moreover, the 
proposal provided that the FNS Officer in Charge may assign a lesser 
period of authorization, depending on the circumstances of the 
particular firm.
    Two comments were received on this proposed provision. One 
commentor favored the provision, while the second disagreed in general 
with the proposed five year maximum authorization period, particularly 
with regard to firms that are longstanding participants in the program. 
In addition, this commentor voiced concerns with providing general 
discretion to FNS Officers in Charge to authorize firms for less than 
the five year period on the basis of undefined circumstances 
surrounding a firm's participation or approval in the program.
    The final rule has been revised to comply with the intent of the 
statute that authorization periods be specified in the program. The 
Department agrees with the comment discussed above, and, therefore, 
this final rule provides that all firms will be authorized for a 
maximum period of five years. This final rule does not provide FNS 
Officers in Charge the discretion to authorize firms for lesser periods 
of time.
    The Department believes that the five year authorization period is 
reasonable and necessary for the effective administration of the 
program. Moreover, the specification of an authorization period in no 
way precludes FNS from periodically requesting information from a firm 
or concern for purposes of reauthorization in the program or from 
withdrawing or terminating the authorization of a firm in accordance 
with program regulations. The Department will develop administrative 
procedures to ensure that, prior to the time of expiration of a firm's 
authorization period, the firm is provided with authorization materials 
and given the opportunity to submit such materials and information to 
enable FNS to evaluate the firm's qualifications for continued 
participation in the FSP. This provision is included in Sec. 278.1(j) 
of the regulation.

Post-Authorization Controls and Stiffer Penalties in the Program

    Retailers that abuse the privilege of authorization in the FSP will 
have that privilege revoked. The PRWORA includes a number of 
significant tools that will enhance the Department's ability to enforce 
the effectiveness of the FSP and the monitoring of retailers.

Authority To Suspend Stores Violating Program Requirements Pending 
Administrative and Judicial Review

    Section 845 of PRWORA amends section 14 of the FSA to require that 
a permanent disqualification of a firm from the FSP be effective from 
the date of the firm's receipt of the notice of disqualification. The 
PRWORA also provides that if such an administrative action by FNS is 
reversed through administrative or judicial review, the Secretary is 
not liable for the value of any revenues lost by the firm during such a 
disqualification period. This nondiscretionary provision was effective 
upon the date of enactment of the law, and affects firms that are 
subject to permanent disqualification for trafficking in the program, 
as well as those firms subject to permanent disqualification for having 
been sanctioned twice before for violations of the program. These 
changes are found at Sec. 278.6(b) of the final rule. Editorial 
revisions have also been made to Secs. 278.8(a), 279.7(a) and 
279.10(d). Since this provision is nondiscretionary, its implementation 
cannot be affected by public comment.
    It is important to note that the statute specifically refers only 
to permanent

[[Page 23170]]

disqualification actions. Therefore, firms which request and are found 
to be eligible for a civil money penalty in lieu of permanent 
disqualification for trafficking are not affected by the immediate 
suspension requirement of the statute. Further, such firms would not be 
expected to pay the civil money penalty pending appeal and may continue 
to participate in the program pending appeal. One commentor agreed with 
the Department's assertion that immediate disqualification refers only 
to those firms not eligible for a civil money penalty in lieu of 
permanent disqualification, but pointed out that the preamble 
discussion in the proposed rule was not reflected in the regulatory 
language itself. In response to this comment, the language at 
Secs. 278.6(b)(2)(i) and 278.6(c) has been clarified to account for 
this.
    In addition, the commentor requested clarification as to how the 
period between receipt of the notice of immediate disqualification and 
the 10-day period for a firm to submit a request and documentation for 
a trafficking CMP is handled. The immediate disqualification pending 
appeal is effective upon the date of receipt of the determination 
letter by the firm. The current regulations at Sec. 278.6(b)(1) provide 
that, prior to such a determination, the firm receives a letter of 
charges to which it may respond. It is at that time, subsequent to 
receipt of the charge letter, that the firm would be indicating whether 
or not it desires a CMP in lieu of permanent disqualification and would 
submit documentation in support of such a request. If it is determined 
that the firm is eligible for a trafficking CMP, the determination 
letter that follows would acknowledge that the firm has requested and 
documented its eligibility for a trafficking CMP, and thus could 
continue to participate in the program pending any appeal of the 
trafficking finding itself. However, once the determination is made 
that the firm is not eligible for a CMP in lieu of trafficking, the 
firm receives a determination letter that indicates the firm has been 
found to be ineligible for a CMP in lieu of permanent disqualification 
for trafficking and that the permanent disqualification is effective 
upon receipt of the determination letter. The firm, while disqualified, 
is eligible to appeal the determination. However, in those cases, the 
disqualification action cannot be held pending appeal because the firm 
has been permanently disqualified.

Investigations

    Section 278.6(a) of the regulation was proposed to be amended in 
accordance with section 841 of PRWORA to make an editorial change 
stipulating that findings of program violations and the subsequent 
suspension or disqualification of a firm may be made based on evidence 
established through on-site investigations, inconsistent redemption 
data, or evidence obtained through a transaction report under an 
electronic benefit transfer system. This editorial change supports 
current program practice and USDA authority to enforce program 
compliance. The provision is nondiscretionary and is finalized in this 
rule.

Disqualification of Retailers Disqualified From the WIC Program

    Section 843 of PRWORA amends section 12 of the FSA to require the 
Secretary to develop standards by which firms disqualified from the 
Special Supplemental Nutrition Program for Women, Infants and Children 
(WIC) are to be reciprocally disqualified from participation in the 
FSP. Currently, the regulations provide for the withdrawal of such 
firms from the FSP in response to WIC disqualification action. Such 
withdrawals must run for a concurrent period of time. This has proven 
to be problematic in that it is sometimes difficult for the Food Stamp 
withdrawal action to catch up to the WIC disqualification, particularly 
if the WIC disqualification is for a 6 month period or less. Under the 
current regulations, a firm has the right to appeal the FSP action, and 
often, by the time the firm has appealed the FSP withdrawal, the WIC 
disqualification period is ending.
    The change in the law provides that the FSP disqualification period 
(1) shall be for the same period of time as the WIC disqualification 
period; (2) may run consecutive to the WIC disqualification; and (3) 
shall not be subject to FSP administrative or judicial review. These 
provisions of the statute are nondiscretionary and are finalized in 
this rule.
    In addition, the law stipulates that the Secretary establish 
criteria for such reciprocal disqualification actions. Current 
regulations at Sec. 278.1(o) set forth the types of WIC violations that 
will result in withdrawal of a firm from participation in the FSP. The 
Department proposed to retain these same criteria, now found at 
Sec. 278.6(e)(8), with some editorial changes to ensure that 
trafficking violations are fully covered in the listed violations. The 
WIC violations included here, therefore, represent very serious 
violations of the WIC Program that are comparable to serious violations 
of the FSP. These violations best represent the potential risk of 
violations of a similar nature being committed by unscrupulous firms in 
the FSP, thus necessitating reciprocal FSP action to protect the 
integrity of the FSP.
    The Department solicited comments on the reciprocal 
disqualification standards set out in Sec. 278.6(e)(8). One comment was 
received on these specific provisions. The commentor indicated concern 
that some WIC State agencies may be misinterpreting the standards set 
forth in the regulation, and that without the opportunity to appeal to 
the FSP to dispute such misinterpretations, the firm's reciprocal 
disqualification would be erroneous. Section 12(g) of the FSA does not 
allow a firm to appeal a reciprocal disqualification action taken by 
FNS. Editorial changes to this final rule have been made to conform to 
the language of the WIC program final rule, which provides some 
clarification to WIC State agencies. In addition, the preamble to that 
rule provides WIC State agencies with further clarification regarding 
WIC Program sanctions and guidance to assist those State agencies in 
appropriately classifying WIC Program violations.
    Conforming changes to restrict those firms subject to reciprocal 
disqualification from eligibility for FSP administrative and judicial 
review are made to Sec. 278.6(n), Sec. 278.8(a), Sec. 279.3(a)(2) and 
Sec. 279.10(a) of this regulation. The changes made to these sections 
are nondiscretionary and are not subject to public comment.

Disqualification of Retailers Who Intentionally Submit Falsified 
Applications

    Section 842 of the PRWORA amends section 12(b) of the FSA to 
authorize the Secretary to disqualify, including permanently 
disqualify, participating retailers who knowingly submit applications 
that contain false information about substantive issues. The May 6, 
1998 rule proposed to permanently disqualify a firm if it is found that 
false information directly related to the firm's eligibility for 
authorization is knowingly submitted on the application. In addition, 
the rule proposed that in cases in which any false information is 
knowingly submitted that would impact on the ability of FNS to monitor 
and identify potentially violative firms, the firm shall be 
disqualified for three years.
    The proposed rule outlined examples of the type of information that 
would be considered ``substantive'' for the purpose of determining 
eligibility, as

[[Page 23171]]

well as the type of information that is considered to be substantive 
from a monitoring standpoint. These examples, however, are not 
inclusive of all of the information that, if fraudulently submitted, 
may result in disqualification of a firm.
    The rule also proposed to deny authorization of any such firm which 
is found to have knowingly submitted false information on the 
application at the time of initial application processing. It was 
proposed that such firms be denied for the same period of time for 
which they would be disqualified under Sec. 278.6(e). The Department 
encouraged comments on this discretionary provision; however, no 
comments were received. Therefore, the revisions as proposed are 
finalized in Sec. 278.6(e) and Sec. 278.1(k) of this rule.

List of Subjects

7 CFR Part 271

    Administrative practice and procedure, Food stamps, Grant 
programs--social programs.

7 CFR Part 278

    Administrative practice and procedure, Banks, banking, Claims, Food 
stamps, Groceries--retail, Groceries, General line--wholesaler, 
Penalties.

7 CFR Part 279

    Administrative practice and procedure, Food stamps, Groceries--
retail, Groceries, General line--wholesaler.
    Accordingly, 7 CFR Parts 271, 278 and 279 are amended as follows:

    1. The authority citation for parts 271, 278 and 279 continues to 
read as follows:

    Authority: 7 U.S.C. 2011-2032.

PART 271--GENERAL INFORMATION AND DEFINITIONS

    2. In Sec. 271.2, the definition of ``coupon'' is revised to read 
as follows:


Sec. 271.2  Definitions.

* * * * *
    Coupon means any coupon, stamp, type of certificate, authorization 
card, cash or check issued in lieu of a coupon, or access device, 
including an electronic benefit transfer card or personal 
identification number issued pursuant to the provisions of the Food 
Stamp Act of 1977, as amended, for the purchase of eligible food.
* * * * *

PART 278--PARTICIPATION OF RETAIL FOOD STORES, WHOLESALE FOOD 
CONCERNS AND INSURED FINANCIAL INSTITUTIONS

    3. In Sec. 278.1:
    a. Paragraph (a) is revised;
    b. Paragraph (b)(3) is revised;
    c. Paragraph (j) is revised;
    d. Paragraph (k) is amended by revising the first sentence of 
paragraph (k)(2) and redesignating the paragraph (k)(2) as paragraph 
(k)(7), and adding new paragraphs (k)(2), (k)(3), (k)(4), (k)(5) and 
(k)(6);
    e. Paragraph (l) is amended by redesignating paragraphs (l)(1)(iii) 
through (l)(1)(v) as (l)(1)(v) through (l)(1)(vii), respectively, 
revising newly redesignated paragraph (l)(1)(vi), and adding new 
paragraphs (l)(1)(iii) and (l)(1)(iv);
    f. The introductory text of paragraph (m) is revised;
    g. Paragraph (o) is removed, and paragraphs (p) through (t) are 
redesignated as paragraphs (o) through (s), respectively; and
    h. Newly redesignated paragraph (o) is revised and newly 
redesignated paragraph (q) is amended by removing references to (r)(2), 
(r)(3), (r)(1)(ii), (r)(1)(i), (r)(1)(iv), (r)(2)(ii), (r)(2)(iv), 
(r)(3)(iv) and (r), wherever they appear, and adding in their place 
references to (q)(2), (q)(3), (q)(1)(ii), (q)(1)(i), (q)(1)(iv), 
(q)(2)(ii), (q)(2)(iv), (q)(3)(iv) and (q), respectively.
    The revisions and additions read as follows:


Sec. 278.1  Approval of retail food stores and wholesale food concerns.

    (a) Application. Any firm desiring to participate or continue to be 
authorized in the program shall file an application as prescribed by 
FNS. Such an application shall contain information which will permit a 
determination to be made as to whether such an applicant qualifies, or 
continues to qualify, for authorization under the provisions of the 
program. FNS may require that a retail food store or wholesale food 
concern be visited to confirm eligibility for program participation 
prior to such store or concern being authorized or reauthorized in the 
program. Required visits shall be conducted by an authorized employee 
of the Department, a designee of the Secretary, or an official of the 
State or local government designated by the Secretary. FNS shall deny 
or approve the application, or request additional information from the 
applicant firm, within 30 days of receipt of the initial application.
    (b) Determination of authorization. * * *
    (3) The business integrity and reputation of the applicant. FNS 
shall deny the authorization of any firm from participation in the 
program for a period of time as specified in paragraph (k) of this 
section based on consideration of information regarding the business 
integrity and reputation of the firm as follows:
    (i) Conviction of or civil judgment against the owners, officers or 
managers of the firm for:
    (A) Commission of fraud or a criminal offense in connection with 
obtaining, attempting to obtain, or performing a public or private 
agreement or transaction;
    (B) Commission of embezzlement, theft, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, or obstruction of 
justice; or
    (C) Violation of Federal, State and/or local consumer protection 
laws or other laws relating to alcohol, tobacco, firearms, controlled 
substances, and/or gaming licenses;
    (ii) Administrative findings by Federal, State or local officials 
that do not give rise to a conviction or civil judgment but for which a 
firm is removed from such a program, or the firm is not removed from 
the program but FNS determines a pattern exists (3 or more instances) 
evidencing a lack of business integrity on the part of the owners, 
officers or managers of the firm;
    (iii) Evidence of an attempt by the firm to circumvent a period of 
disqualification, a civil money penalty or fine imposed for violations 
of the Food Stamp Act and program regulations;
    (iv) Previous Food Stamp Program violations administratively and/or 
judicially established as having been committed by owners, officers, or 
managers of the firm for which a sanction had not been previously 
imposed and satisfied;
    (v) Evidence of prior Food Stamp Program violations personally 
committed by the owner(s) or the officer(s) of the firm at one or more 
units of a multi-unit firm, or evidence of prior Food Stamp Program 
violations committed by management at other units of multi-unit firms 
which would indicate a lack of business integrity on the part of 
ownership and for which sanctions had not been previously imposed and 
satisfied; or
    (vi) Commission of any other offense indicating a lack of business 
integrity or business honesty of owners, officers or managers of the 
firm that seriously and

[[Page 23172]]

directly affects the present responsibility of a person.
* * * * *
    (j) Authorization. Upon approval, FNS shall issue a nontransferable 
authorization card to the firm. The authorization card shall be valid 
only for the time period for which the firm is authorized to accept and 
redeem food stamp benefits. The authorization card shall be retained by 
the firm until such time as the authorization period has ended, 
authorization in the program is superseded, or the card is surrendered 
or revoked as provided in this part. All firms will be authorized in 
the program for a period of 5 years. The specification of an 
authorization period in no way precludes FNS from periodically 
requesting information from a firm for purposes of reauthorization in 
the program or from withdrawing or terminating the authorization of a 
firm in accordance with this part.
    (k) Denying authorization. * * *
    (2) The firm has failed to meet the eligibility requirements for 
authorization under Criterion A or Criterion B, as specified in the 
Food Stamp Act of 1977, as amended; or, for co-located wholesale/retail 
firms, the firm fails to meet the requirements of paragraph (b)(1)(iv) 
of this section. Any firm that has been denied authorization on these 
bases shall not be eligible to submit a new application for 
authorization in the program for a minimum period of six months from 
the effective date of the denial;
    (3) The firm has been found to lack the necessary business 
integrity and reputation to further the purposes of the program. Such 
firms shall be denied authorization in the program for the following 
period of time:
    (i) Firms for which records of criminal conviction or civil 
judgment exist that reflect on the business integrity of owners, 
officers, or managers as stipulated in Sec. 278.1(b)(3)(i) shall be 
denied authorization permanently;
    (ii) Firms which have been officially removed from other Federal, 
State or local government programs through administrative action shall 
be denied for a period equivalent to the period of removal from any 
such programs; or, if the firm is not removed from the program, but FNS 
determines a pattern (3 or more instances) exists evidencing a lack of 
business integrity on the part of the owners, officers or managers of 
the firm, such firm shall be denied for a one year period effective 
from the date of denial;
    (iii) Firms for which evidence exists of an attempt to circumvent a 
period of disqualification, a civil money penalty, or fine imposed for 
violations of the Food Stamp Act of 1977, as amended, and program 
regulations shall be denied for a period of three years from the 
effective date of denial;
    (iv) Firms for which evidence exists of prior Food Stamp Program 
violations by owners, officers, or managers of the firm for which a 
sanction had not been previously imposed and satisfied shall be denied 
for a period of time equivalent to the appropriate disqualification 
period for such previous violations, effective from the date of denial;
    (v) Firms for which evidence exists of prior Food Stamp Program 
violations at other units of multi-unit firms as specified in 
Sec. 278.1(b)(3)(v) for which a sanction had not been previously 
imposed and satisfied shall be denied for a period of time equivalent 
to the appropriate disqualification period for such previous 
violations, effective from the date of denial;
    (vi) Firms for which any other evidence exists which reflects 
negatively on the business integrity or business honesty of the owners, 
officers or managers of the firm as specified in Sec. 278.1(b)(3)(vi) 
shall be denied for a period of one year from the effective date of 
denial;
    (4) The firm has filed an application that contains false or 
misleading information about a substantive matter, as specified in 
Sec. 278.6(e). Such firms shall be denied authorization for the periods 
specified in Sec. 278.6(e)(1) or Sec. 278.6(e)(3);
    (5) The firm's participation in the program will not further the 
purposes of the program;
    (6) The firm has been found to be circumventing a period of 
disqualification or a civil money penalty through a purported transfer 
of ownership;
    (7) The firm has failed to pay in full any fiscal claim assessed 
against the firm under Sec. 278.7, any fines assessed under 
Secs. 278.6(l) or 278.6(m), or a transfer of ownership civil money 
penalty assessed under Sec. 278.6(f). * * *
    (l) Withdrawing authorization. (1) * * *
    (iii) The firm fails to meet the requirements for eligibility under 
Criterion A or B, as specified in the Food Stamp Act of 1977, as 
amended, or, for co-located wholesale/retail firms, the firm fails to 
meet the requirements of paragraph (b)(1)(iv) of this section, for the 
time period specified in paragraph (k)(2) of this section;
    (iv) The firm fails to maintain the necessary business integrity to 
further the purposes of the program, as specified in paragraph (b)(3) 
of this section. Such firms shall be withdrawn for lack of business 
integrity for periods of time in accordance with those stipulated in 
paragraph (k)(3) of this section for specific business integrity 
findings;
* * * * *
    (vi) The firm has failed to pay in full any fiscal claim assessed 
against the firm under Sec. 278.7 or any fines assessed under 
Secs. 278.6(l) or 278.6(m) or a transfer of ownership civil money 
penalty assessed under Sec. 278.6(f); or
* * * * *
    (m) Refusal to accept correspondence or to respond to inquiries. 
FNS may withdraw or deny the authorization of any firm which:
* * * * *
    (o) Applications containing false information. The filing of any 
application containing false or misleading information may result in 
the denial of approval for participation in the program, as specified 
in paragraph (k) of this section, or disqualification of a firm from 
participation in the program, as specified in Sec. 278.6, and may 
subject the firm and persons responsible to civil or criminal action.
* * * * *
    4. In Sec. 278.6:
    a. Paragraph (a) is revised;
    b. Paragraph (b)(1) is amended by adding one new sentence to the 
end of the paragraph;
    c. Paragraph (b)(2)(i) is amended by adding three new sentences to 
the end of the paragraph;
    d. Paragraph (c) is amended by adding four new sentences to the end 
of the paragraph;
    e. Paragraph (e) is amended by adding new paragraphs (e)(1)(iii), 
(e)(3)(vi) and (e)(8);
    f. Paragraph (i) is amended by removing the first sentence of 
Criterion 4 and adding three new sentences in its place, and by 
removing the words ``or management'' in paragraph (i)(1)(v); and
    g. Paragraph (n) is revised.
    The revisions and additions read as follows:


Sec. 278.6  Disqualification of retail food stores and wholesale food 
concerns, and imposition of civil money penalties in lieu of 
disqualifications.

    (a) Authority to disqualify or subject to a civil money penalty. 
FNS may disqualify any authorized retail food store or authorized 
wholesale food concern from further participation in the program if the 
firm fails to comply with the Food Stamp Act of 1977, as amended, or 
this part. Such disqualification shall result from a

[[Page 23173]]

finding of a violation on the basis of evidence that may include facts 
established through on-site investigations, inconsistent redemption 
data, evidence obtained through a transaction report under an 
electronic benefit transfer system, or the disqualification of a firm 
from the Special Supplemental Nutrition Program for Women, Infants and 
Children (WIC), as specified in paragraph (e)(8) of this section. 
Disqualification shall be for a period of 6 months to 5 years for the 
firm's first sanction; for period of 12 months to 10 years for a firm's 
second sanction; and disqualification shall be permanent for a 
disqualification based on paragraph (e)(1) of this section. Any firm 
which has been disqualified and which wishes to be reinstated at the 
end of the period of disqualification, or at any later time, shall file 
a new application under Sec. 278.1 so that FNS may determine whether 
reauthorization is appropriate. The application may be filed no earlier 
than 10 days before the end of the period of disqualification. FNS may, 
in lieu of a disqualification, subject a firm to a civil money penalty 
of up to $10,000 for each violation if FNS determines that a 
disqualification would cause hardship to participating households. FNS 
may impose a civil money penalty of up to $20,000 for each violation in 
lieu of a permanent disqualification for trafficking, as defined in 
Sec. 271.2 of this chapter, in accordance with the provisions of 
paragraphs (i) and (j) of this section.
    (b) Charge letter. (1) * * * In the case of a firm for which action 
is taken in accordance with paragraph (e)(8) of this section, the 
charge letter shall inform such firm that the disqualification action 
is not subject to administrative or judicial review, as specified in 
paragraph (e)(8) of this section.
    (2) Charge letter for trafficking. (i) * * * The charge letter 
shall also advise the firm that the permanent disqualification shall be 
effective immediately upon the date of receipt of the notice of 
determination, regardless of whether a request for review is filed in 
accordance with Sec. 279.5 of this chapter. If the disqualification is 
reversed through administrative or judicial review, the Secretary shall 
not be liable for the value of any sales lost during the 
disqualification period. Firms that request and are determined eligible 
for a civil money penalty in lieu of permanent disqualification for 
trafficking may continue to participate in the program pending review 
and shall not be required to pay the civil money penalty pending appeal 
of the trafficking determination action.
* * * * *
    (c) * * * In the case of a firm subject to permanent 
disqualification under paragraph (e)(1) of this section, the 
determination shall inform such a firm that action to permanently 
disqualify the firm shall be effective immediately upon the date of 
receipt of the notice of determination from FNS, regardless of whether 
a request for review is filed in accordance with Sec. 279.5 of this 
chapter. If the disqualification is reversed through administrative or 
judicial review, the Secretary shall not be liable for the value of any 
sales lost during the disqualification period. Firms that request and 
are determined eligible to a civil money penalty in lieu of permanent 
disqualification for trafficking may continue to participate in the 
program pending review and shall not be required to pay the civil money 
penalty pending appeal of the trafficking determination action. In the 
case of a firm for which action is taken in accordance with paragraph 
(e)(8) of this section, the determination notice shall inform such firm 
that the disqualification action is not subject to administrative or 
judicial review, as specified in paragraph (e)(8) of this section.
* * * * *
    (e) Penalties. * * *
    (1) * * *
    (iii) It is determined that personnel of the firm knowingly 
submitted information on the application that contains false 
information of a substantive nature that could affect the eligibility 
of the firm for authorization in the program, such as, but not limited 
to, information related to:
    (A) Eligibility requirements under Sec. 278.1(b), (c), (d), (e), 
(f), (g) and (h);
    (B) Staple food stock;
    (C) Annual gross sales for firms seeking to qualify for 
authorization under Criterion B as specified in the Food Stamp Act of 
1977, as amended;
    (D) Annual staple food sales;
    (E) Total annual gross retail food sales for firms seeking 
authorization as co-located wholesale/retail firms;
    (F) Ownership of the firm;
    (G) Employer Identification Numbers and Social Security Numbers;
    (H) Food Stamp Program history, business practices, business 
ethics, WIC disqualification or authorization status, when the store 
did (or will) open for business under the current ownership, business, 
health or other licenses, and whether or not the firm is a retail and 
wholesale firm operating at the same location; or
    (I) Any other information of a substantive nature that could affect 
the eligibility of a firm.
* * * * *
    (3) * * *
    (vi) Personnel of the firm knowingly submitted information on the 
application that contained false information of a substantive nature 
related to the ability of FNS to monitor compliance of the firm with 
FSP requirements, such as, but not limited to, information related to:
    (A) Annual eligible retail food sales;
    (B) Store location and store address and mailing address;
    (C) Financial institution information; or
    (D) Store name, type of ownership, number of cash registers, and 
non-food inventory and services.
* * * * *
    (8) FNS shall disqualify from the Food Stamp Program any firm which 
is disqualified from the WIC Program:
    (i) Based in whole or in part on any act which constitutes a 
violation of that program's regulation and which is shown to constitute 
a misdemeanor or felony violation of law, or for any of the following 
specific program violations:
    (A) A pattern of claiming reimbursement for the sale of an amount 
of a specific food item which exceeds the store's documented inventory 
of that food item for a specified period of time;
    (B) Exchanging WIC food instruments for cash, credit or 
consideration other than eligible food; or the exchange of firearms, 
ammunition, explosives or controlled substances, as defined in section 
802 of title 21 of the United States Code, for food instruments;
    (C) A pattern of receiving, transacting and/or redeeming WIC food 
instruments outside of authorized channels;
    (D) A pattern of exchanging non-food items for a WIC food 
instrument;
    (E) A pattern of charging WIC customers more for food than non-WIC 
customers or charging WIC customers more than the current shelf price; 
or
    (F) A pattern of charging for food items not received by the WIC 
customer or for foods provided in excess of those listed on the food 
instrument.
    (ii) FNS shall not disqualify a firm from the Food Stamp Program on 
the basis of a WIC disqualification unless:
    (A) Prior to the time prescribed for securing administrative review 
of the WIC disqualification action, the firm was provided individual 
and specific notice that it could be disqualified from the Food Stamp 
Program based on the WIC violations committed by the firm;
    (B) A signed and dated copy of such notice is provided to FNS by 
the WIC administering agency; and

[[Page 23174]]

    (C) A determination is made in accordance with paragraph (a) of 
this section that such action will not cause a hardship for 
participating Food Stamp households.
    (iii) Such a Food Stamp disqualification:
    (A) Shall be for the same length of time as the WIC 
disqualification;
    (B) May begin at a later date than the WIC disqualification; and
    (C) Shall not be subject to administrative or judicial review under 
the Food Stamp Program.
* * * * *
    (i) Criteria for eligibility for a civil money penalty in lieu of 
permanent disqualification for trafficking. * * *

    Criterion 4. Firm ownership was not aware of, did not approve, 
did not benefit from, or was not in any way involved in the conduct 
or approval of trafficking violations; or it is only the first 
occasion in which a member of firm management was aware of, 
approved, benefited from, or was involved in the conduct of any 
trafficking violations by the firm. Upon the second occasion of 
trafficking involvement by any member of firm management uncovered 
during a subsequent investigation, a firm shall not be eligible for 
a civil money penalty in lieu of permanent disqualification. 
Notwithstanding the above provision, if trafficking violations 
consisted of the sale of firearms, ammunition, explosives or 
controlled substances, as defined in 21 U.S.C. Sec. 802, and such 
trafficking was conducted by the ownership or management of the 
firm, the firm shall not be eligible for a civil money penalty in 
lieu of permanent disqualification.* * *
* * * * *
    (n) Review of determination. The determination of FNS shall be 
final and not subject to further administrative or judicial review 
unless a written request for review is filed within the period stated 
in Sec. 279.5 of this chapter.
    Notwithstanding the above, any FNS determination made on the basis 
of paragraph (e)(8) of this section shall not be subject to further 
administrative or judicial review.
* * * * *
    5. In Sec. 278.8, paragraph (a) is revised to read as follows:


Sec. 278.8  Administrative review--retail food stores and wholesale 
food concerns.

    (a) Requesting review. A food retailer or wholesale food concern 
aggrieved by administrative action under Secs. 278.1, 278.6 or 278.7 
may, within the period stated in Sec. 279.5 of this chapter, file a 
written request for review of the administrative action with the review 
officer. However, disqualification actions taken against firms in 
accordance with Sec. 278.6(e)(8) shall not be subject to administrative 
or judicial review. On receipt of the request for review, the 
questioned administrative action shall be stayed pending disposition of 
the request for review by the review officer, except in the case of a 
permanent disqualification as specified in Sec. 278.6(e)(1). A 
disqualification for failure to pay a civil money penalty shall not be 
subject to administrative review.
* * * * *

PART 279--ADMINISTRATIVE AND JUDICIAL REVIEW--FOOD RETAILERS AND 
FOOD WHOLESALERS

    6. In Sec. 279.3, paragraph (a)(2) is revised to read as follows:


Sec. 279.3  Authority and jurisdiction.

    (a) Jurisdiction. * * *
    (2) Imposition of a fine under Secs. 278.6(l) or 278.6(m) of this 
chapter or disqualification from participation in the program or 
imposition of a civil money penalty under Sec. 278.6 of this chapter, 
except for disqualification actions imposed under Sec. 278.6(e)(8) of 
this chapter;
* * * * *
    7. In Sec. 279.7, paragraph (a) is amended to add two new sentences 
after the first sentence to read as follows:


Sec. 279.7  Action upon receipt of a request for review.

    (a) Holding action. * * * However, in cases of permanent 
disqualification under Sec. 278.6(e)(1) of this chapter, the 
administrative action shall not be held in abeyance pending such a 
review determination. If the disqualification is reversed through 
administrative or judicial review, the Secretary shall not be held 
liable for the value of any sales lost during the disqualification 
period. * * *
* * * * *
    8. In Sec. 279.10, the first sentence of paragraph (a) and 
paragraph (d) are revised to read as follows:


Sec. 279.10  Judicial review.

    (a) Filing for judicial review. Except for firms disqualified from 
the program in accordance with Sec. 278.6(e)(8) of this chapter, a firm 
aggrieved by the determination of the administrative review officer may 
obtain judicial review of the determination by filing a complaint 
against the United States in the U.S. district court for the district 
in which the owner resides or is engaged in business, or in any court 
of record of the State having competent jurisdiction. * * *
* * * * *
    (d) Stay of action. During the pendency of any judicial review, or 
any appeal therefrom, the administrative action under review shall 
remain in force unless the firm makes a timely application to the court 
and after hearing thereon, the court stays the administrative action 
after a showing that irreparable injury will occur absent a stay and 
that the firm is likely to prevail on the merits of the case. However, 
permanent disqualification actions taken in accordance with 
Sec. 278.6(e)(1) of this chapter shall not be subject to such a stay of 
administrative action. If the disqualification action is reversed 
through administrative or judicial review, the Secretary shall not be 
liable for the value of any sales lost during the disqualification 
period.

    Dated: April 21, 1999.
Samuel Chambers, Jr.,
Administrator, Food and Nutrition Service.
[FR Doc. 99-10736 Filed 4-29-99; 8:45 am]
BILLING CODE 3410-30-P