[Federal Register Volume 65, Number 132 (Monday, July 10, 2000)]
[Rules and Regulations]
[Pages 42283-42287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17270]


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SOCIAL SECURITY ADMINISTRATION

20 CFR Parts 404 and 416

RIN 0960-AF20


Administrative Procedure for Imposing Penalties for False or 
Misleading Statements

AGENCY: Social Security Administration (SSA).

ACTION: Interim final rules with a request for comments.

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SUMMARY: We are issuing these interim final rules to reflect and 
implement section 207 of the Foster Care Independence Act of 1999 
(Public Law (Pub. L.) 106-169). This provision amended the Social 
Security Act (the Act) by adding a new section 1129A which provides for 
the imposition by SSA of a penalty on any person who knowingly (knew or 
should have known or acted with knowing disregard for the truth) makes 
a statement that is false or misleading or omits a material fact for 
use in determining any right to or the amount of monthly benefits under 
titles II or XVI. The penalty is nonpayment for a specified number of 
months of benefits under title II that would otherwise be payable to 
the person and ineligibility for cash benefits under title XVI 
(including State supplementary payments made by SSA according to 
Sec. 416.2005).
    Although we are issuing these rules as interim final rules, we are 
also asking for public comments on the changes made by these rules.

DATES: These regulations are effective July 10, 2000. To be sure your 
comments are considered, we must receive them by September 8, 2000.

ADDRESSES: Comments should be submitted in writing to the Commissioner 
of Social Security, P.O. Box 17703, Baltimore, MD 21235-7703, sent by 
telefax to (410) 966-2830, sent by E-mail to ``[email protected],'' 
or delivered to the Office of Process and Innovation Management, Social 
Security Administration, L2109 West Low Rise Building, 6401 Security 
Boulevard, Baltimore, MD 21235-6401, between 8 a.m. and 4:30 p.m. on 
regular business days. Comments may be inspected during these hours by 
making arrangements with the contact person shown below.

FOR FURTHER INFORMATION CONTACT: Gareth Dence, Social Insurance 
Specialist, Office of Program Benefits, Social Security Administration, 
6401 Security Boulevard, Baltimore, MD 21235-6401, (410) 965-9872 or 
TTY (410) 966-5609. For information on eligibility, claiming benefits, 
or coverage of earnings, call our national toll-free number, 1-800-772-
1213 or TTY 1-800-325-0778.

SUPPLEMENTARY INFORMATION:

Background

    Section 207 of the Foster Care Independence Act of 1999 (Pub. L. 
106-169) amended title XI of the Act by adding section 1129A to help 
prevent and respond to fraud and abuse in SSA's programs and 
operations. Section 1129A provides for the imposition by SSA of a 
penalty on an individual who makes, or causes to be made, a statement 
or representation of a material fact that the person knows or should 
know is false or misleading or omits a material fact, or that the 
person makes with a knowing disregard for the truth. The statement must 
be made for use in determining eligibility for or the amount of 
benefits under title II or XVI. The penalty is nonpayment for 6, 12 or 
24 months of benefits under title II that would otherwise be payable to 
the person and ineligibility for the same period of time for cash 
benefits under title XVI (including State supplementary payments made 
by SSA according to Sec. 416.2005).
    Section 207 of Pub. L. 106-169 directs the Commissioner of Social 
Security to develop rules prescribing the administrative process for 
making determinations under section 1129A, including when periods of 
penalty shall commence, and providing guidance on the exercise of 
discretion as to whether the penalty should be imposed in particular 
cases. Consequently, we are adding new rules at Secs. 404.459 and 
416.1340 to reflect and implement section 1129A.
    Section 1129A of the Act applies to statements and representations 
made on or after December 14, 1999, the date of enactment of the Foster 
Care Independence Act of 1999.

Explanation of Changes

    We are adding new Secs. 404.459 and 416.1340 to our regulations. 
The organization and wording of these two sections are essentially 
identical. These sections make it clear, and as Congress provided, that 
if an individual knowingly (knew or should have known

[[Page 42284]]

or acted with knowing disregard for the truth) made a false or 
misleading statement with respect to one program, the penalty shall 
apply to benefits under both the title II and XVI programs. Applying 
the penalty to both programs helps protect the integrity of both 
programs from further fraud by the same person and helps to maintain 
public confidence in the integrity of our programs. A subsection-by-
subsection discussion of these rules follows.
    Subsection (a) describes the conditions under which you will be 
subject to a penalty by SSA for knowingly making a false or misleading 
statement of a material fact.
    Subsection (b) explains that the penalty is both nonpayment of 
benefits under title II and ineligibility for cash benefits under title 
XVI. When we impose a penalty on you, you cannot receive benefits under 
either title II or title XVI even if the false or misleading statement 
was made in connection with benefits under only one of the two 
programs. We further explain that, as provided by the law, if we impose 
a penalty on your title XVI benefits, you also will not be eligible to 
receive State supplementary payments that SSA pays by agreement with 
the State.
    Subsection (c) explains how long the penalty for making a false or 
misleading statement will last. As provided in section 1129A, the 
penalty will last six consecutive months the first time we penalize 
you, twelve consecutive months the second time we penalize you, and 
twenty-four consecutive months the third or subsequent time we penalize 
you. The penalty will not begin to run until you would otherwise be 
eligible for payment of benefits under either title II or title XVI. 
You will be ineligible to receive benefits at any time during the 
penalty period. If more than one penalty period has been imposed but 
they have not yet run, the penalties will not run concurrently.
    Subsection (d) explains, as provided in section 1129A, that the 
imposition of a penalty will affect only your own eligibility for 
benefits under titles II and XVI. If we impose a penalty on you, the 
penalty will not affect the eligibility or amount of benefits payable 
under titles II or XVI to another person. For example, another person 
(such as your spouse or child) may be entitled to benefits under title 
II based on your earnings record. Benefits would still be payable to 
that person to the extent that you would be receiving such benefits if 
the penalty had not been imposed. As another example, if you are 
receiving title II benefits that are limited under the family maximum 
provision (Sec. 404.403) and we stop your benefits because we impose a 
penalty on you, we will not increase the benefits of other family 
members who are limited by the family maximum provision simply because 
you are not receiving benefits as a result of the penalty. As a third 
example, if you and your spouse are receiving title XVI benefits, those 
benefit payments to your spouse based on the benefit rate for a couple 
will not be affected because of the penalty. Your spouse will continue 
to receive one half of the couple rate.
    Section 1129A also specifically provides that the imposition of a 
penalty will not affect your eligibility for Medicare and Medicaid 
benefits (titles XVIII and XIX of the Act).
    Subsection (e) explains that to impose a penalty on you, we must 
find that you knowingly made a false or misleading statement or omitted 
a material fact. ``Knowingly'' means that you knew or should have known 
that the statement was false or misleading or omitted a material fact, 
or you made the statement with a knowing disregard for the truth. We 
will base our decision to impose a penalty on the evidence and the 
reasonable inferences that can be drawn from that evidence, not on mere 
speculation or suspicion. In determining whether you knowingly made a 
false or misleading statement or omitted a material fact, we will 
consider all of the evidence in the record, including any physical, 
mental, educational, or linguistic limitations (including any lack of 
facility with the English language) which you may have had at the time. 
In determining whether you acted knowingly, we will also consider the 
significance of the statement in terms of its likely impact on your 
benefits under titles II and/or XVI.
    Your false or misleading statement may be investigated for fraud by 
the Office of the Inspector General for civil monetary penalty purposes 
(see section 1129 of the Act) or prosecuted by the United States 
Attorney's Office. We may impose a penalty under these rules in 
addition to any other penalties that may be prescribed by law.
    Subsection (f) explains that if you disagree with our initial 
determination to impose a penalty, you have the right to request 
reconsideration of the penalty decision, as discussed in Secs. 404.907 
and 416.1407. If you do request reconsideration, you will be able to 
present your case in one of three ways:
    1. Case review--We will give you an opportunity to review the 
evidence in our files and then to present oral and written evidence to 
us;
    2. Informal conference--In addition to following the procedures of 
a case review, we will give you an opportunity to present witnesses; 
and
    3. Formal conference--In addition to following the procedures of an 
informal conference, we will give you an opportunity to request us to 
subpoena adverse witnesses and relevant documents and to cross-examine 
adverse witnesses.
    After reconsideration, if you do not agree with our reconsidered 
determination you may follow the normal administrative and judicial 
review process by requesting a hearing before an administrative law 
judge, Appeals Council review and Federal court review, as described in 
Sec. Sec. 404.900 and 416.1400.
    Subsection (g) explains when the penalty period begins and ends. 
That section explains that the penalty period will not begin until the 
month you would otherwise be eligible to receive payments under either 
title II or title XVI. In addition, the point at which the penalty 
period begins may depend on whether you request reconsideration of our 
initial determination to penalize you. If you do not request 
reconsideration, the penalty period will begin no earlier than the 
first day of the second month following the month in which the time 
limit for requesting reconsideration ends. If you request 
reconsideration and our reconsidered determination does not change our 
original decision to penalize you, the penalty period will begin no 
earlier than the first day of the second month following the month we 
notify you of our reconsidered determination. The penalty period ends 
on the last day of the final month of the penalty period. Once a 
sanction period begins it will run continuously even if payments are 
intermittent.

Clarity of These Regulations

    Executive Order (E.O.) 12866 and the President's memorandum of June 
1, 1998, require each agency to write all rules in plain language. In 
addition to your substantive comments on these rules, we invite your 
comments on how to make these rules easier to understand.
    For example:
     Have we organized the material to suit your needs?
     Are the requirements in the rules clearly stated?
     Do the rules contain technical language or jargon that is 
unclear?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the rules easier to understand?
     Would more (but shorter) sections be better?

[[Page 42285]]

     Could we improve clarity by adding tables, lists, or 
diagrams?
     What else could we do to make the rules easier to 
understand?

Electronic Version

    The electronic file of this document is available on the internet 
at http://www.access.gpo.gov/su__docs/aces/aces140.html. It is also 
available on the internet site for SSA (i.e., SSA Online) at http://www.ssa.gov/.

Regulatory Procedures

    Pursuant to section 702(a)(5) of the Act, 42 U.S.C. 902(a)(5), as 
amended by section 102 of Pub. L. 103-296, SSA follows the 
Administrative Procedure Act (APA) rulemaking procedures specified in 5 
U.S.C. 553 in the development of its regulations. The APA provides 
exceptions to its notice and public comment procedures when an agency 
finds there is good cause for dispensing with such procedures on the 
basis that they are impracticable, unnecessary, or contrary to the 
public interest. We have determined that, for the reasons discussed 
below, good cause exists under 5 U.S.C. 553(b)(B) for dispensing with 
the notice and public comment procedures in this case.
    Pub. L. 106-169 was signed into law on December 14, 1999. Section 
207 applies to statements and representations made on or after this 
date of enactment. Moreover, section 207 requires the Commissioner to 
issue regulations prescribing the administrative process for making 
determinations under this section within 6 months after enactment. 
Accordingly, issuing these rules as a notice of proposed rulemaking 
would have delayed issuance of final rules until well past the 
statutory effective date and the regulatory issuance date specified by 
Congress. Therefore, issuing these regulations as interim final rules 
allows us to come as close as possible to that specified date.
    In light of the immediacy of the effective date and the 
Congressional direction that we issue regulations needed to carry out 
these statutory provisions within 6 months, we believe that, under the 
APA, good cause exists for waiver of the prior notice procedures since 
issuance of proposed rules would be impracticable. Although we are 
issuing these rules as interim final regulations, we are requesting 
public comments regarding the substance of these interim final rules 
and will issue revised rules if necessary.
    For the same reasons, we also find good cause for dispensing with 
the 30-day delay in the effective date of a substantive rule, provided 
for by 5 U.S.C. 553(d).

Executive Order 12866

    We have consulted with the Office of Management and Budget (OMB) 
and determined that these interim final rules do not meet the criteria 
for a significant regulatory action under Executive Order 12866. Thus, 
they were not subject to OMB review. We have also determined that these 
rules meet the plain language requirement of Executive Order 12866 and 
the President's memorandum of June 1, 1998. However, as noted earlier, 
we invite your comments on how to make the rules easier to understand.

Regulatory Flexibility Act

    We certify that these interim final regulations will not have a 
significant economic impact on a substantial number of small entities. 
Therefore, a regulatory flexibility analysis as provided in the 
Regulatory Flexibility Act, as amended, is not required.

Paperwork Reduction Act

    These interim final regulations will impose no additional reporting 
or recordkeeping requirements requiring OMB clearance.

(Catalog of Federal Domestic Assistance Program Nos. 96.001, Social 
Security--Disability Insurance; 96.002, Social Security--Retirement 
Insurance; 96.004, Social Security--Survivors Insurance; 96.006 
Supplemental Security Income)

List of Subjects

20 CFR Part 404

    Administrative practice and procedure, Blind, Disability benefits, 
Old-Age, Survivors and Disability Insurance, Reporting and 
recordkeeping requirements, Social Security.

20 CFR Part 416

    Administrative practice and procedure, Aged, Blind, Disability 
benefits, Public assistance programs, Reporting and recordkeeping 
requirements, Supplemental Security Income.

    Dated: June 28, 2000.
Kenneth S. Apfel,
Commissioner of Social Security.

    For the reasons set forth in the preamble, we are amending subpart 
E of part 404 and subpart M of part 416 of the Code of Federal 
Regulations as follows:

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE 
(1950-    )

Subpart E--[Amended]

    1. The authority citation for subpart E of part 404 is revised to 
read as follows:

    Authority: Secs. 202, 203, 204(a) and (e), 205(a) and (c), 
222(b), 223(e), 224, 225, 702(a)(5) and 1129A of the Social Security 
Act (42 U.S.C. 402, 403, 404(a) and (e), 405(a) and (c), 422(b), 
423(e), 424a, 425, 902(a)(5) and 1320a-8a).


    2. Section 404.459 is added to read as follows:


Sec. 404.459  Penalty for false or misleading statements.

    (a) Why would SSA penalize me? You will be subject to a penalty if 
you make, or cause to be made, a statement or representation of a 
material fact for use in determining any initial or continuing right 
to, or the amount of, monthly insurance benefits under title II or 
benefits or payments under title XVI and:
    (1) You know or should know that the statement or representation--
    (i) Is false or misleading; or
    (ii) Omits a material fact; or
    (2) You make the statement with a knowing disregard for the truth.
    (b) What is the penalty? The penalty is nonpayment of benefits 
under title II that we would otherwise pay you and ineligibility for 
cash benefits under title XVI (including State supplementary payments 
made by SSA according to Sec. 416.2005).
    (c) How long will the penalty last? The penalty will last--
    (1) Six consecutive months the first time we penalize you;
    (2) Twelve consecutive months the second time we penalize you; and
    (3) Twenty-four consecutive months the third or subsequent time we 
penalize you.
    (d) Will this penalty affect any of my other government benefits? 
If we penalize you, the penalty will apply only to your eligibility for 
benefits under titles II and XVI (including State supplementary 
payments made by us according to Sec. 416.2005). The penalty will not 
affect--
    (1) Your eligibility for benefits that you would otherwise be 
eligible for under titles XVIII and XIX but for the imposition of the 
penalty; and
    (2) The eligibility or amount of benefits payable under titles II 
or XVI to another person. For example, another person (such as your 
spouse or child) may be entitled to benefits under title II based on 
your earnings record. Benefits would still be payable to that person to

[[Page 42286]]

the extent that you would be receiving such benefits but for the 
imposition of the penalty. As another example, if you are receiving 
title II benefits that are limited under the family maximum provision 
(Sec. 404.403) and we stop your benefits because we impose a penalty on 
you, we will not increase the benefits of other family members who are 
limited by the family maximum provision simply because you are not 
receiving benefits because of the penalty.
    (e) How will SSA make its decision to penalize me? In order to 
impose a penalty on you, we must find that you knowingly (knew or 
should have known or acted with knowing disregard for the truth) made a 
false or misleading statement or omitted a material fact. We will base 
our decision to penalize you on the evidence and the reasonable 
inferences that can be drawn from that evidence, not on speculation or 
suspicion. Our decision to penalize you will be documented with the 
basis and rationale for that decision. In determining whether you 
knowingly made a false or misleading statement or omitted a material 
fact so as to justify imposition of the penalty, we will consider all 
evidence in the record, including any physical, mental, educational, or 
linguistic limitations (including any lack of facility with the English 
language) which you may have had at the time. In determining whether 
you acted knowingly, we will also consider the significance of the 
false or misleading statement or omission in terms of its likely impact 
on your benefits.
    (f) What should I do if I disagree with SSA's initial determination 
to penalize me? If you disagree with our initial determination to 
impose a penalty, you have the right to request reconsideration of the 
penalty decision as explained in Sec. 404.907. We will give you a 
chance to present your case, including the opportunity for a face-to-
face conference. If you request reconsideration of our initial 
determination to penalize you, you have the choice of a case review, 
informal conference, or formal conference, as described in 
Sec. 416.1413(a) through (c). If you disagree with our reconsidered 
determination you have the right to follow the normal administrative 
and judicial review process by requesting a hearing before an 
administrative law judge, Appeals Council review and Federal court 
review, as explained in Sec. 404.900.
    (g) When will the penalty period begin and end? Subject to the 
additional limitations noted in paragraphs (g)(1) and (g)(2) of this 
section, the penalty period will begin the first day of the month for 
which you would otherwise receive payment of benefits under title II or 
title XVI were it not for imposition of the penalty. Once a sanction 
begins, it will run continuously even if payments are intermittent. If 
more than one penalty has been imposed, but they have not yet run, the 
penalties will not run concurrently.
    (1) If you do not request reconsideration of our initial 
determination to penalize you, the penalty period will begin no earlier 
than the first day of the second month following the month in which the 
time limit for requesting reconsideration ends. The penalty period will 
end on the last day of the final month of the penalty period. For 
example, if the time period for requesting reconsideration ends on 
January 10, a 6-month period of nonpayment begins on March 1 if you 
would otherwise be eligible to receive benefits for that month, and 
ends on August 31.
    (2) If you request reconsideration of our initial determination to 
penalize you and the reconsidered determination does not change our 
original decision to penalize you, the penalty period will begin no 
earlier than the first day of the second month following the month we 
notify you of our reconsidered determination. The penalty period will 
end on the last day of the final month of the penalty period. For 
example, if we notify you of our reconsidered determination on August 
31, 2001, and you are not otherwise eligible for payment of benefits at 
that time, but would again be eligible to receive payment of benefits 
on October 1, 2003, a 6-month period of nonpayment would begin on 
October 1, 2003 and end on March 31, 2004.

PART 416--SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND 
DISABLED

Subpart M--[Amended]

    3. The authority citation for subpart M of part 416 is revised to 
read as follows:

    Authority: Secs. 702(a)(5), 1129A, 1611-1615, 1619, and 1631 of 
the Social Security Act (42 U.S.C. 902(a)(5), 1382-1382d, 1382h, 
1383 and 1320a-8a).


    4. Section 416.1340 is added to read as follows:


Sec. 416.1340  Penalty for false or misleading statements.

    (a) Why would SSA penalize me? You will be subject to a penalty if 
you make, or cause to be made, a statement or representation of a 
material fact for use in determining any initial or continuing right 
to, or the amount of, monthly insurance benefits under title II or 
benefits or payments under title XVI and:
    (1) You know or should know that the statement or representation
    (i) Is false or misleading; or
    (ii) Omits a material fact; or
    (2) You make the statement with a knowing disregard for the truth.
    (b) What is the penalty? The penalty is ineligibility for cash 
benefits under title XVI (including State supplementary payments made 
by SSA according to Sec. 416.2005) and nonpayment of any benefits under 
title II that we would otherwise pay you.
    (c) How long will the penalty last? The penalty will last--
    (1) Six consecutive months the first time we penalize you;
    (2) Twelve consecutive months the second time we penalize you; and
    (3) Twenty-four consecutive months the third or subsequent time we 
penalize you.
    (d) Will this penalty affect any of my other government benefits? 
If we penalize you, the penalty will apply only to your eligibility for 
benefits under titles II and XVI (including State supplementary 
payments made by us according to Sec. 416.2005). The penalty will not 
affect--
    (1) Your eligibility for benefits that you would otherwise be 
eligible for under titles XVIII and XIX but for the imposition of the 
penalty; and
    (2) The eligibility or amount of benefits payable under titles II 
or XVI to another person. For example, if you and your spouse are 
receiving title XVI benefits, those benefit payments to your spouse 
based on the benefit rate for a couple will not be affected because of 
the penalty. Your spouse will receive one half of the couple rate.
    (e) How will SSA make its decision to penalize me? In order to 
impose a penalty on you, we must find that you knowingly (knew or 
should have known or acted with knowing disregard for the truth) made a 
false or misleading statement or omitted a material fact. We will base 
our decision to penalize you on the evidence and the reasonable 
inferences that can be drawn from that evidence, not on speculation or 
suspicion. Our decision to penalize you will be documented with the 
basis and rationale for that decision. In determining whether you 
knowingly made a false or misleading statement or omitted a material 
fact so as to justify imposition of the penalty, we will consider all 
evidence in the record, including any physical, mental, educational, or 
linguistic limitations (including any lack of facility with the English 
language) which you may have had at the time. In determining whether

[[Page 42287]]

you acted knowingly, we will also consider the significance of the 
false or misleading statement or omission in terms of its likely impact 
on your benefits.
    (f) What should I do if I disagree with SSA's initial determination 
to penalize me? If you disagree with our initial determination to 
impose a penalty, you have the right to request reconsideration of the 
penalty decision as explained in Sec. 416.1407. We will give you a 
chance to present your case, including the opportunity for a face-to-
face conference. If you request reconsideration of our initial 
determination to penalize you, you have the choice of a case review, 
informal conference, or formal conference, as described in 
Sec. 416.1413(a) through (c). If you disagree with our reconsidered 
determination you have the right to follow the normal administrative 
and judicial review process by requesting a hearing before an 
administrative law judge, Appeals Council review and Federal court, 
review as explained in Sec. 416.1400.
    (g) When will the penalty period begin and end? Subject to the 
additional limitations noted in paragraphs (g)(1) and (g)(2) of this 
section, the penalty period will begin the first day of the month for 
which you would otherwise receive payment of benefits under title II or 
title XVI were it not for imposition of the penalty. Once a sanction 
begins, it will run continuously even if payments are intermittent. If 
more than one penalty has been imposed, but they have not yet run, the 
penalties will not run concurrently.
    (1) If you do not request reconsideration of our initial 
determination to penalize you, the penalty period will begin no earlier 
than the first day of the second month following the month in which the 
time limit for requesting reconsideration ends. The penalty period will 
end on the last day of the final month of the penalty period. For 
example, if the time period for requesting reconsideration ends on 
January 10, a 6-month period of nonpayment begins on March 1 if you 
would otherwise be eligible to receive benefits for that month, and 
ends on August 31.
    (2) If you request reconsideration of our initial determination to 
penalize you and the reconsidered determination does not change our 
original decision to penalize you, the penalty period will begin no 
earlier than the first day of the second month following the month we 
notify you of our reconsidered determination. The penalty period will 
end on the last day of the final month of the penalty period. For 
example, if we notify you of our reconsidered determination on August 
31, 2001, and you are not otherwise eligible for payment of benefits at 
that time, but would again be eligible to receive payment of benefits 
on October 1, 2003, a 6-month period of nonpayment would begin on 
October 1, 2003 and end on March 31, 2004.

[FR Doc. 00-17270 Filed 7-7-00; 8:45 am]
BILLING CODE 4191-02-P