[Federal Register Volume 70, Number 22 (Thursday, February 3, 2005)]
[Rules and Regulations]
[Pages 5543-5565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2029]



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  Federal Register / Vol. 70, No. 22 / Thursday, February 3, 2005 / 
Rules and Regulations  

[[Page 5543]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

5 CFR Parts 5501 and 5502

RIN 3209-AA15


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

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

ACTION: Interim final rule with request for comments.

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

SUMMARY: The Department of Health and Human Services, with the 
concurrence of the Office of Government Ethics (OGE), is amending the 
HHS regulation that supplements the OGE Standards of Ethical Conduct. 
This interim final rule specifies additional procedural and substantive 
requirements that are necessary to address ethical issues at the 
National Institutes of Health (NIH) and updates nomenclature, 
definitions, and procedures applicable to other components of the 
Department. The rule: Revises the definition of a significantly 
regulated organization for the Food and Drug Administration (FDA); 
Updates the organization titles of designated separate agencies; Amends 
the gift exception for native artwork and craft items received from 
Indian tribes or Alaska Native organizations; Aligns the FDA prohibited 
holdings limit with the de minimis holdings exemption in OGE 
regulations; Revises prior approval procedures for outside activities; 
and, subject to certain exceptions: Prohibits NIH employees from 
engaging in certain outside activities with supported research 
institutions, health care providers or insurers, health-related trade 
or professional associations, and biotechnology, pharmaceutical, 
medical device, and other companies substantially affected by the 
programs, policies, or operations of the NIH; Bars NIH employees who 
file a public or confidential financial disclosure report from holding 
financial interests in substantially affected organizations; Subjects 
NIH non-filer employees to a monetary cap on holdings in such 
organizations; Specifies for NIH employees prior approval procedures 
for and limitations on the receipt of certain awards from outside 
sources; and Imposes a one-year disqualification period during which 
NIH employees are precluded from official actions involving an award 
donor. In addition, the Department is adding a new supplemental part to 
expand financial disclosure reporting requirements for certain outside 
activities and to ensure that prohibited financial interests are 
identified.

DATES: This interim rule is effective February 3, 2005. Comments 
received by April 4, 2005, will be considered prior to issuance of a 
final rule.

ADDRESSES: Send comments in writing to the Office of the General 
Counsel, Ethics Division, Department of Health and Human Services, Room 
700-E, Hubert H. Humphrey Building, 200 Independence Avenue, SW, 
Washington, DC 20201, Attention: Linda L. Conte. Comments also may be 
sent electronically to the following e-mail address: [email protected]. 
For e-mail messages, the subject line should include the following 
reference: ``Comments on Interim Final HHS Supplemental Ethics Rule.''

FOR FURTHER INFORMATION CONTACT: Edgar M. Swindell, Associate General 
Counsel, Office of the General Counsel, Ethics Division, Department of 
Health and Human Services, telephone (202) 690-7258, fax (202) 205-
9752.

SUPPLEMENTARY INFORMATION:

I. Background

    The Standards of Ethical Conduct for Employees of the Executive 
Branch, 5 CFR part 2635, establish uniform rules of ethical conduct 
applicable to all executive branch personnel. Pursuant to 5 CFR 
2635.105, an agency may, with the approval of the Office of Government 
Ethics, supplement those standards with additional rules that the 
agency determines are necessary and appropriate, in view of its 
programs and operations, to fulfill the purposes of part 2635. On July 
30, 1996, with the concurrence and co-signature of the OGE Director, 
HHS published at 61 FR 39755 a final rule establishing supplemental 
standards of ethical conduct for its employees. This interim final rule 
amends that final rule codified at 5 CFR part 5501.
    In addition to several changes with respect to rules applicable to 
employees of the National Institutes of Health related to outside 
activities, financial holdings, and awards, this interim final rule 
makes several changes to the HHS Supplemental Standards of Ethical 
Conduct applicable to all Department employees. These changes are based 
on the experience that has been garnered by the Department in 
implementing the regulation since it was issued in 1996. The interim 
final rule establishes more specific requirements with respect to 
requests for approval of outside activities and imposes an annual 
reauthorization process.
    Although immediately effective, this is as an interim rule. HHS 
intends to evaluate certain provisions in the rule, particularly on 
outside activities and financial holdings, within the next year. During 
this time, HHS also will: (1) Complete a review of existing outside 
activities that is presently ongoing; (2) evaluate possible effects on 
hiring and retention that may result from the imposition of outside 
activity and financial holdings prohibitions; and (3) develop a 
comprehensive oversight system to address concerns raised about the NIH 
ethics program.
    In addition, the Executive Branch Financial Disclosure Regulation, 
5 CFR part 2634, specifies uniform rules governing the public and 
confidential financial disclosure systems established under the Ethics 
in Government Act. Pursuant to 5 CFR 2634.103, an agency may, subject 
to the prior written approval of the Office of Government Ethics, issue 
supplemental financial disclosure regulations that are necessary to 
address special or unique circumstances. This interim final rule amends 
chapter XLV of title 5 by adding new part 5502 to provide for an annual 
reporting by all employees of financial and other information 
concerning outside activities and a supplemental disclosure by all FDA 
and NIH employees with respect to prohibited financial interests.
    Post-promulgation comments on this interim final rule are 
requested. Those comments and experience under the

[[Page 5544]]

interim rule will inform the development of a final permanent rule, in 
consultation with OGE.

II. Analysis of the Amendments

A. Supplemental Standards of Ethical Conduct

Section 5501.101 General

    The definition of a ``significantly regulated organization'' found 
at Sec.  5501.101(c)(2) is amended to make clear that for entities that 
do not have a record of sales of FDA-regulated products, and which have 
not yet commenced operations in a field regulated by FDA, an entity 
will nonetheless be deemed significantly regulated if its research, 
development, or other business activities are reasonably expected to 
result in the development of products that are regulated by FDA.
    Since the issuance of the HHS Supplement, the existing language of 
the regulation has suggested to some employees that until a company 
submits an investigational new drug application and begins conducting 
clinical trials, the company is not significantly regulated (assuming 
there is no record of prior sales of FDA-regulated products). Because 
FDA does not have a generalized authority to regulate the ``field'' of 
scientific research, some employees have interpreted the existing 
regulation as permitting employment with a company that is thus far 
only conducting preliminary research, even when it is reasonable to 
conclude that the research is conducted with the aim of developing FDA-
regulated products.
    Accordingly, this amendment ensures that newly-formed business 
entities that do not yet have products that are approved for sale, and 
which have not yet undertaken operations that bring them within FDA's 
regulatory jurisdiction, will be understood to fall within the 
definition of significantly regulated if their research, development, 
or other business activities are reasonably expected to result in the 
development of products that are regulated by FDA. It also makes clear 
that where a company's operations are regulated by FDA, to fall within 
the definition, the operations need not be entirely in areas regulated 
by FDA as long as they are primarily in such areas.

Section 5501.102 Designation of HHS Components as Separate Agencies

    The changes to this section reflect the name change of two HHS 
agencies, the Agency for Healthcare Research and Quality, previously 
known as the Agency for Health Care Policy and Research, and the 
Centers for Medicare and Medicaid Services, previously known as the 
Health Care Financing Administration. The Office of Consumer Affairs 
was abolished in 1998 and is deleted from the list. In addition, the 
amendment specifies that the designation of separate agencies will 
apply in defining a prohibited source for purposes of the new awards 
rule in Sec.  5501.111 for NIH employees.

Section 5501.103 Gifts From Federally Recognized Indian tribes or 
Alaska Native Villages or Regional or Village Corporations

    The change to this section clarifies that items representative of 
traditional native culture from federally recognized Indian tribes or 
Alaska Native villages, or regional or village corporations, fall 
within the previously established rule permitting HHS employees to 
accept gifts of native artwork and crafts, provided that the aggregate 
market value of individual gifts received from any one tribe or village 
does not exceed $200 per year and other criteria are satisfied. The 
amendment permits gifts that, while representative of traditional 
native culture, were not necessarily produced or manufactured by the 
donor entity.

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

    The section heading and text have been revised to delete redundant 
references to the ``FDA Office of the Chief Counsel.'' Section 
5501.102(b)(1) already specifies that any section in part 5501 that is 
made applicable to employees of an identified component that is 
designated as a separate agency is applicable, in addition to employees 
actually working within a component, to employees in a division or 
region of the Office of the General Counsel (OGC) that principally 
advises or represents that component.
    Section 5501.104(a) prohibits FDA employees from holding financial 
interests in significantly regulated organizations, subject to certain 
exceptions in Sec.  5501.104(b). The change in paragraph (b)(1) 
broadens the scope of the exception, which previously covered only 
pension interests, such as those arising from participation in defined 
benefit or defined contribution plans. Experience since the issuance of 
the supplemental regulation indicates that many incoming employees hold 
financial interests which, like a pension interest, were acquired as a 
form of compensation from a significantly regulated organization, but 
which do not qualify as a pension. For example, a recent report by the 
National Academy of Sciences found that stock and stock options are 
common employee benefits in small, private technology firms in the 
fields of engineering and health care, and the report recommended 
against forced divestiture of such employee benefits for scientists 
entering public service, as such requirements may unreasonably hamper 
the recruitment of talented and experienced scientific personnel. 
National Academy of Sciences, Science and Technology in the National 
Interest: Ensuring the Best Presidential and Federal Advisory Committee 
Science and Technology Appointments 199-201 (2004). Therefore, the 
exception has been amended to include not only pensions but other 
employee benefits.
    This exception is not intended to permit retention of financial 
interests merely because the interest was purchased by an employee 
contemporaneously with employment in private industry through a broker, 
financial advisor, or other source not acting as part of the private 
employer's compensation system.
    In addition, like all the exceptions in this section, the provision 
merely permits retention of a financial interest notwithstanding the 
prohibited financial holdings provision of this section. The recusal 
requirements of 18 U.S.C. 208 apply to all financial interests, 
including those covered by the exceptions in this section. (References 
to Sec.  208 within this regulation are descriptive and not intended to 
interpret or expand upon the text of the statute.) Moreover, all 
financial interests are subject to directed divestiture pursuant to 5 
CFR 2635.403(b), when there has been a determination by the agency that 
holding the particular financial interest, or a class of financial 
interests, will require the employee's disqualification from matters so 
central or critical to the performance of his official duties that the 
employee's ability to perform the duties of his office would be 
materially impaired, or will adversely affect the efficient 
accomplishment of the agency's mission because another employee cannot 
readily be assigned to perform the work from which the employee is 
recused by reason of the financial interest.
    Section 5501.104(b)(2) contains an exception to the prohibited 
holdings rule for employees who are not required to file a public or 
confidential financial disclosure report. Non-filers have been 
permitted to have a financial interest not exceeding $5,000 in 
significantly regulated organizations. The amendment raises the amount 
of the allowable holding to $15,000. The change parallels the increase 
from

[[Page 5545]]

$5,000 to $15,000 in the OGE regulatory exemption for matters involving 
parties, found at 5 CFR 2640.202(a), that occurred after the original 
issuance of the HHS supplemental provision. The OGE exemption allows an 
employee to participate in any particular matter involving specific 
parties in which the disqualifying financial interest does not exceed 
$15,000 in publicly traded securities or long-term Federal Government 
or municipal securities. Because the allowable holding amount in the 
HHS Supplement corresponded to the OGE de minimis amount, an increase 
in the latter justifies an increase in the allowable holding limit in 
the HHS Supplement. Further, the section will track any future change 
in the OGE de minimis amount.
    Although the dollar amounts are identical, the two provisions 
substantively are not coextensive. Not all financial interests that may 
be covered by the FDA exception will be covered by the OGE regulatory 
exemption. For example, the FDA exception permits a non-filer to hold a 
financial interest in a non-publicly traded company (assuming all the 
other criteria in the section are also satisfied), but the OGE 
regulatory exemption only applies when the corporate securities are 
publicly traded. Therefore, the financial interest may still be 
problematic under 18 U.S.C. 208 and require a recusal, a divestiture, 
or an individual waiver, even though Sec.  5501.104(b)(2) excepts the 
holding from the FDA automatic divestiture requirement.
    In applying the allowable holding amount, the existing section 
specifies that the asset value is to be measured ``at the time of 
acquisition.'' The amendment to this section now defines that phrase. 
This change is intended to obviate the possibility of unintended 
situations which, depending on the interpretation of that phrase, could 
lead to treatment for some employees that is inconsistent with 
treatment of similarly-situated employees, and lead to results that are 
inconsistent with the intent of the provision. Specifically, there 
could be scenarios in which an employee who recently joined the agency, 
and who had acquired an asset in the distant past, could be permitted 
to retain an asset, now valued well over $15,000, because it had been 
valued under $15,000 ``at the time of acquisition,'' while other new 
employees who acquired an asset more recently, but at a level above 
$15,000, are required to divest a much lower valued financial interest 
in the same or other significantly regulated organizations. Such 
inconsistent results in the implementation of the regulation could 
undermine the very purpose of the provision (i.e., that only de minimis 
holdings should be permitted) and undermine employee confidence that 
the regulation is being applied fairly and uniformly. Accordingly, this 
change is intended to make clear that for assets that were acquired 
prior to joining FDA, the ``time of acquisition'' will be deemed to be 
the date of the employee's entrance on duty at the agency. The change 
will prevent unfair and unwarranted inconsistencies in how the 
prohibited holding regulation is applied and will prevent situations in 
which employees are treated disparately, as a consequence of investment 
decisions made prior to their entrance on duty.
    New Sec.  5501.104(c) provides that, for purposes of determining 
the divestiture period specified in 5 CFR 2635.403(d), an employee is 
not considered to have been directed to divest a financial interest 
prohibited under paragraph (a) of this section until the due date for 
disclosure of such interests. For new entrant employees, this 
disclosure would be submitted on either a public or confidential 
financial disclosure report or the supplemental report required by new 
Sec.  5502.106(c), depending upon their filing status. For incumbent 
employees, the due date of the report required by Sec.  5502.106(c) 
would be determinative. This rule allows the agency to analyze an 
employee's holdings and make a determination as to whether a particular 
financial interest is covered by the prohibition before the requirement 
to divest becomes applicable. The text codifies existing agency 
practice and parallels a similar provision in the Department of Housing 
and Urban Development supplemental ethics regulations at 5 CFR 
7501.104(c) which prescribes a divestiture period of 90 days from the 
date a prohibited financial interest is reported.

Section 5501.106 Outside Employment and Other Outside Activities

    The paragraph heading and introductory text of paragraph (c)(3) 
have been revised to delete redundant references to the FDA ``Office of 
the Chief Counsel.'' Section 5501.102(b)(1) already specifies that any 
section in part 5501 that is made applicable to employees of an 
identified component that is designated as a separate agency is 
applicable, in addition to employees actually working within a 
component, to employees in a division or region of the Office of the 
General Counsel that principally advises or represents that component.
    The amended paragraph (c)(4) provides that the attorneys in the 
Office of the Counsel to the Inspector General are subject to the same 
outside activities restrictions as those in the Office of the General 
Counsel.
    The amended paragraph (d)(2)(i) adds employees of the NIH to the 
prior approval requirement, currently applicable to employees of the 
FDA, for any outside employment, whether or not for compensation, or 
any self-employed business activity.
    The amended paragraph (d)(3) requires an employee's supervisor to 
review the request for approval of an outside activity and provide a 
statement addressing the extent to which the employee's duties are 
related to the proposed outside activity. This information shall then 
be forwarded to an agency designee to make a final determination with 
respect to the request. The amendment also specifies that the following 
information be included with the request: the employee's step within a 
grade, appointment type, and financial disclosure filing status; a 
description of how the employee's official duties will affect the 
interests of the outside employer; whether stock or other remuneration 
in cash or in-kind will be received in connection with the activity; 
the amount of compensation to be received in connection with the 
activity; the amount and date of compensation received, or due for 
services performed, within the prior six years; a syllabus, outline, 
summary, synopsis, draft, or similar description of content and subject 
matter if the activity involves teaching, speaking, or writing; and 
other information as determined by the designated agency ethics 
official, or the HHS component with the concurrence of the designated 
agency ethics official, to be necessary or appropriate to evaluate 
whether the request is prohibited by statute or regulation. Should 
other types of information be routinely required of all employees, 
general notice of such requirements will be disseminated through 
instructions or manual issuances and revisions to the forms that are 
utilized for these purposes.
    The amendment to paragraph (d)(4) clarifies that a request for 
approval of outside employment or other outside activity may not be 
granted unless there is an affirmative determination that the 
employment or other activity is not expected to involve conduct 
prohibited by statute or regulation.
    Existing paragraph (d)(5) has been renumbered as paragraph (d)(6). 
New paragraph (d)(5) specifies that approval of an outside activity is 
effective for one year only. Employees must renew their request for 
approval annually if they

[[Page 5546]]

desire to continue any long term outside activity. In addition, 
employees must submit a revised request for approval if they change 
positions within the agency or if a significant change occurs in the 
nature of the outside activity or in the scope of the employees' 
duties.
    Paragraph (e) incorporates a waiver provision to be used where, 
under the particular circumstances, application of the prohibited 
outside activity rules for FDA, OGC, or NIH employees is not necessary 
to ensure confidence in the impartiality and objectivity with which 
agency programs are administered. The waiver must not be inconsistent 
with part 2635 of this title or otherwise prohibited by law. This 
standard parallels the waiver provision at 5 CFR 3101.108(g) in the 
Department of the Treasury supplemental ethics regulation that imposes 
outside activity prohibitions applicable to employees of the Office of 
the Comptroller of the Currency. This provision could be applied to 
provide some relief, for example, where the prohibition unduly causes 
personal or family hardship or, prohibits an employee from completing a 
professional obligation entered into prior to Government service, or 
restricts the Department from securing necessary and uniquely 
specialized services.

Section 5501.109 Prohibited Outside Activities Applicable to Employees 
of the National Institutes of Health

    Prior to the publication of this interim final rule, the criteria 
for approving or disapproving requests for approval of outside 
activities of NIH employees were set forth in the OGE regulation at 5 
CFR part 2635, subpart H, and the Supplemental Standards of Ethical 
Conduct for Employees of HHS at 5 CFR 5501.106. Both the OGE rules and 
the HHS provisions in Sec.  5501.106 remain in effect for all NIH 
employees. This interim final rule imposes additional, more stringent 
requirements, similar to those in 5 CFR 5501.106(c)(3) for employees of 
the FDA.
    Outside activities with entities substantially affected by NIH 
programs, policies, or operations must be further restricted in order 
to avoid the potential for real or apparent conflicts of interest that 
may threaten the integrity of the critically important research 
conducted and sponsored by the NIH. This assessment is informed by 
recommendations of the Advisory Committee to the NIH Director that were 
presented in the June 22, 2004, Report of the NIH Blue Ribbon Panel on 
Conflict of Interest Policies (Blue Ribbon Panel Report), available at 
http://www.nih.gov/about/ethics_COI_panelreport.htm, but is 
predicated upon a consideration of various outside activities of NIH 
employees that have been subject to inquiry and the desire to advance 
sound public policy. Many of the panel recommendations and related 
issues were highlighted and discussed at Congressional hearings on 
outside consulting arrangements by NIH employees. Panel recommendations 
to liberalize certain current restrictions were not adopted in this 
rule. Additional restrictions are necessary because NIH operations 
increasingly require significant interaction with pharmaceutical, 
biotechnological, biostatistical, and medical device companies 
(referred to within the regulation as ``substantially affected 
organizations'') and utilization of their products; the size and scope 
of NIH funding of biomedical and behavioral research, research 
training, and related activities have grown substantially; and NIH 
research findings are broad in range and influence within the health 
care sector. Moreover, in light of recent Congressional oversight and 
media reports, HHS has determined that the existing rules governing 
outside activities have not prevented reasonable public questioning of 
the integrity of NIH employees and the impartiality and objectivity 
with which agency programs are administered.
    Through its approximately 17,500 full-time equivalent employees, 
NIH conducts biomedical and behavioral research, research training and 
related activities in its intramural program, and its extramural 
program funds those activities at universities, medical centers, 
research institutes and other nonprofit and for-profit organizations 
through grants, cooperative agreements, and contracts. Both the 
intramural and extramural programs interact with academic research 
institutions and substantially affected organizations in many ways, 
both formal (e.g., funding agreements, research agreements, 
intellectual property licenses, and research and development contracts) 
and informal (e.g., exchange of research materials and other research 
collaborations, public and private scientific discussions, and joint 
sponsorship of projects). The official actions of many NIH employees 
can affect the financial interests of a broad range of businesses and 
organizations, including health care providers and health insurers, 
often in subtle ways. Informed by recent experience, it is appropriate 
to limit broadly employees' outside activities with those entities to 
avoid any appearance that official actions may be potentially 
influenced by private financial interests or loyalty to an outside 
employer.
    The current HHS supplemental regulation on outside employment and 
other outside activities, 5 CFR 5501.106, prohibits employees of the 
NIH and other employees of HHS from providing certain services, for 
compensation, in the preparation of grant applications, contract 
proposals or other documents to be submitted to HHS, and from 
compensated outside employment with respect to a particular activity 
funded by an HHS grant, contract, cooperative agreement, or other 
funding mechanism authorized by statute, or conducted under a 
cooperative research and development agreement (CRADA).
    Under Sec.  5501.109(c)(1) of this interim final rule, subject to 
certain exceptions, all NIH employees are also prohibited from engaging 
in employment (which includes serving as an officer, director, or other 
fiduciary board member, serving on a scientific advisory board or 
committee, and consulting or providing professional services) and 
compensated teaching, speaking, writing, or editing with a 
substantially affected organization; a hospital, clinic, health 
maintenance organization, or other health care provider (defined 
comprehensively to include the types of entities that are eligible to 
receive payments under the Medicare program for the provision of health 
care items or services); a health insurer; a health, science, or health 
research-related trade, professional, consumer, or advocacy 
association; or a supported research institution.
    A ``substantially affected organization'' is defined in paragraph 
(b)(8) to include those entities, irrespective of corporate form, that 
are engaged in the research, development, or manufacture of 
biotechnological, biostatistical, pharmaceutical, or medical devices, 
equipment, preparations, treatments, or products. The term includes 
those organizations a majority of whose members are engaged in such 
activities.
    Section 5501.109(b)(8)(iii) also permits the designated agency 
ethics official or, in consultation with the designated agency ethics 
official, the NIH Director or the NIH Director's designee to determine 
that other entities shall be classified as substantially affected 
organizations. These determinations will be based upon whether such 
entities are engaged in activities that are substantially affected by 
the programs, policies, or operations of the NIH and whether, in view 
of the ongoing research conducted or sponsored by the NIH, interests in 
these organizations are likely to pose ethics

[[Page 5547]]

concerns for NIH employees similar to those presented by the entities 
specifically listed in paragraph (b)(8)(i). This authority might be 
used, for example, to cover a food, beverage, or tobacco manufacturer, 
if its products became a pervasive subject of NIH research activities 
into the health benefits or detriment associated with the product or 
its ingredients, and the research activities required a substantial 
coordinated effort across institutes and centers, such that it would be 
necessary or appropriate to apply a prophylactic rule applicable to all 
NIH employees. Lists of organizations designated as substantially 
affected organizations under paragraph (b)(8)(iii) will be maintained 
by the designated agency ethics official and the NIH deputy ethics 
counselor and disseminated to employees through appropriate means, 
including website posting.
    A ``supported research institution'' is defined in paragraph (b)(9) 
as an educational institution or a non-profit independent research 
institute that within the last year or currently has applied for, 
proposed, or received an NIH grant, cooperative agreement, research and 
development contract, or CRADA.
    Employees are also prohibited under paragraph (c)(1) from engaging 
in any self-employed business activity that involves the sale or 
promotion of products or services of a substantially affected 
organization or a health care provider or insurer. This section excepts 
the ownership of a patent or related commercialization activities 
conducted pursuant to Executive Order 10096, the Federal Technology 
Transfer Act of 1986 (FTTA), 15 U.S.C. 3710d, or implementing 
regulations at 37 CFR 404, as amended. Those activities will continue 
to be reviewed and approved on a case-by-case basis in accordance with 
existing conflict of interest and other applicable rules and policies. 
For example, under the FTTA the NIH might allow an employee inventor to 
obtain, or retain, title to an NIH invention, because the NIH has 
determined that it does not wish to file for a patent or otherwise 
commercialize the invention. The activities of owning that invention in 
a personal capacity, seeking and owning patent protection on that 
invention in a personal capacity, and engaging in commercialization 
activities related to that invention have been encouraged under the 
FTTA, and are not automatically prohibited by this regulation. Instead, 
these activities will continue to be scrutinized in accordance with the 
facts of each situation to determine whether they present a conflict or 
potential conflict and the situation should be managed to best serve 
the public interest.
    These prohibited outside activities rules are applicable to all NIH 
employees, but are focused on those types of activities and external 
entities that may pose the most significant risk of potential 
conflicts. In addition, the need for prophylactic rules barring certain 
types of outside activities derives from the considerable complexity of 
the current regulatory scheme, the intractable difficulties encountered 
at NIH in differentiating scientific work performed as an official duty 
from that proposed as an outside activity, and the significant 
administrative burden inherent in case-by-case determinations.
    The outside activity prior approval process is complicated. The 
following discourse describes the analysis required for each potential 
outside activity: Approval requires an assessment of whether the 
proposed outside activity violates any statute or regulation, including 
the OGE Standards of Ethical Conduct for Employees of the Executive 
Branch or the HHS Supplemental Ethics Regulation. Included in the OGE 
Standards is the requirement that the proposed outside activity cannot 
create an actual or apparent conflict that would result in recusals 
that would materially impair an employee's ability to do his job.
    In evaluating outside activities for conflicts, the reviewer 
initially addresses two provisions that form the core of Federal ethics 
law. A criminal statute, 18 U.S.C. 208, deals with an ``actual 
conflict'' due to the employee's own or imputed financial interest in 
the resolution of a government matter. A regulatory provision in the 
OGE Standards, 5 CFR 2635.502, principally addresses disqualifications 
called for when an ``appearance of a conflict'' arises from a ``covered 
relationship.''
    Under section 208 of the criminal code, to avoid a conflict of 
interest that results from outside employment, among other types of 
financial interests, a Federal employee must not participate personally 
and substantially in a particular matter that, to his knowledge, 
directly and predictably affects his own financial interest in the 
employment opportunity or the financial interests of his outside 
employer. To prevent an ``appearance of a conflict'' that results from 
serving in a role short of employment, for example, as an advisor, 
consultant, or other type of independent contractor compensated with 
fees and expenses, a different rule applies. Under section 502 of the 
regulations, if a reasonable person with knowledge of the relevant 
facts would question the Federal employee's impartiality, the employee 
must recuse, but only from ``particular matters involving specific 
parties,'' such as grants, contracts, applications, clinical trials, 
audits, investigations, or lawsuits that involve, as a party or 
representative of a party, the company to which the employee is 
providing consulting services.
    Both sections are disqualification provisions in that they do not 
prohibit the acquisition of an employment or consulting relationship, 
rather they bar actual ``participation'' in a potentially conflicting 
matter, either personally or through the direct and active supervision 
of the participation of a subordinate. However, neither section is 
triggered by mere knowledge of, or official responsibility for, a 
particular matter. In short, if an employee can recuse appropriately 
and still be able to perform the duties of his position, then an 
outside activity may be approved, provided there are no other statutory 
or regulatory impediments.
    A number of statutes and regulations preclude certain outside 
activities. For example, if an employee seeks approval to be a lobbyist 
before the Federal Government, the anti-representation statutes, 18 
U.S.C. 203 and 205, would be implicated. If the activity is clearly one 
that should be done as an official duty, such as an official speech on 
agency programs, then approval would be denied, under 18 U.S.C. 209, as 
an improper salary supplementation.
    If the circumstances would create an appearance of violating 
ethical standards, for example where the employee appears to have used 
his official position to obtain an outside compensated business 
opportunity or his actions reasonably create the impression of using 
his public office for the private gain of the outside company, then 
under the principles in the OGE Standards, 5 CFR 2635.101(b), and the 
rules governing misuse of position, 5 CFR 2635.702, the outside 
activity may be denied. An arrangement for compensation that far 
exceeds a market rate or that involves first class or foreign travel or 
extravagant accommodations, for example, may create the appearance that 
the offer was made or the remuneration was enhanced due to the 
employee's official position. Another situation cited in the OGE 
Standards in example 2 following 5 CFR 2635.802 would be where an 
employee was recently instrumental in formulating industry standards 
and will again be so involved. If an affected company offers a 
consulting contract to the employee to render advice to the company 
about how it can restructure its operations to comply with the very 
industry

[[Page 5548]]

standards that the employee has just drafted, the consulting 
arrangement should not be approved even though the employee lacks any 
current assignments affecting the industry, and even though the outside 
consulting can be finished before he again works on such matters.
    Another regulation, 5 CFR 2635.807 precludes compensation, subject 
to certain exceptions, if an employee wants to teach a course, deliver 
a speech, or write a book that relates to his official duties. 
(Consulting, technically, is not covered by this section, but the 
analysis in section 807 does provide guidance in evaluating many 
outside activities.) The ``relatedness'' test evaluates, among other 
factors, the subject matter of the activity. For career employees, 
compensation is precluded if the teaching, speaking, or writing deals 
in significant part with any current assignment (or one completed 
within the last year) or any ongoing policy, program, or operation of 
the agency. However, in a note following the provision, OGE observes 
that a career employee may receive compensation for ``teaching, 
speaking, or writing on a subject within the employee's discipline or 
inherent area of expertise based on his educational background or 
experience even though the [activity] deals generally with a subject 
within the agency's areas of responsibility.'' But this textual note 
does not lessen the applicability of other requirements of section 807, 
notably that the invitation to engage in the activity must not have 
been extended to the employee primarily because of his official 
position or tendered, directly or indirectly, by a person or entity 
that has interests that may be affected substantially by the 
performance or nonperformance of the employee's official duties. The 
circumstances of the invitation and the identity of the inviter are as 
important as the subject matter of the activity.
    Determining whether an invitation was prompted by official position 
requires an inquiry into whether the invitation to participate in the 
outside activity would not have been forthcoming had the employee not 
held the status, authority, or duties associated with the employee's 
Federal position. Resolving whether the inviter has interests that may 
be affected substantially by the performance or nonperformance of the 
employee's official duties depends upon whether it is reasonable to 
assume that the invitee may become involved in a matter substantially 
affecting the inviter, or whether the chance of such intervention is 
simply a remote and speculative possibility. These judgments are at 
times difficult and capable of reasonable debate.
    Ascertaining whether the subject matter of the proposed activity 
deals significantly with a current or recent assignment often may be 
particularly difficult given the technical scientific nature of the 
research conducted or funded by the NIH. For example, only a trained 
expert could discern whether a scientist engaged in basic research on 
the molecular basis for the development of skin cancer could be 
approved to lecture for compensation on the etiology of acute 
lymphocytic leukemia. The analysis would focus on whether the 
presenter, in discussing the latter subject, would draw substantially 
on the knowledge gleaned from the former. Parsing through biomedical 
jargon to exclude the possibility of a significant overlap is not a 
task to which the current NIH ethics program is well-suited.
    This analytical framework is comprised of requirements that apply 
across the executive branch. While the framework may be capable of 
being applied readily at other agencies, historically NIH has 
confronted unique challenges in implementing these executive branch-
wide requirements. In its recent review of the NIH ethics program, OGE 
noted that, in examining outside activity requests, its reviewers 
generally were not in a position to identify potential conflict of 
interest situations because a lack of scientific expertise prevented 
them from determining how the employees' official duties may have 
related to their outside consulting activities. The Office of 
Government Ethics observed that a case-by-case approach utilizing the 
executive branch-wide standards has not been adequate to protect the 
reputation of the NIH and its employees. It strongly recommended that 
the Department develop supplemental regulations to address the kinds of 
consulting activities that have raised integrity concerns at the NIH.
    This rule in fact expands upon that recommendation by addressing 
other activities that may pose similar concerns. Compensated teaching, 
speaking, and writing activities when performed by an NIH scientist for 
a substantially affected organization or a supported research 
institution can be no less troubling to the public than employment or 
consulting with these entities. Where biomedical research and 
publication activities are involved, any financial connection to 
affected industries may be perceived adversely. The British charitable 
trust, Sense About Science, in a recent working paper on scientific 
peer review observed this phenomenon in the context of sponsored 
research, stating that often ``critical commentators simply emphasi[z]e 
the source of research funding in order to imply that the researcher's 
findings may be unreliable in some unspecified way.'' Sense About 
Science, Peer Review and the Acceptance of New Scientific Ideas (2004), 
p. 18, available at www.senseaboutscience.org.uk/.
    For the NIH, section 807 does not adequately address this problem. 
Steps have been taken to incorporate review by a panel of technical 
advisors into the outside activity approval process in order to verify 
that the subject matter of a proposed activity is not related to 
official duties within the meaning of section 807. Efforts to augment 
training and guidance on the section have been initiated, and 
additional staff resources have been committed to its implementation. 
However, neither the addition of scientific expertise, nor training, 
nor improved administration can avoid the result that section 807 at 
times permits activities that members of the public might intuitively 
suppose are prohibited. For example, under current law, an NIH 
intramural researcher who proposes to deliver a paid lecture on general 
scientific topics within her inherent area of expertise for a drug 
company or a grantee university potentially may be allowed to do so if 
the various tests under section 807 and other applicable provisions are 
satisfied. Explanations--such as the lecture would not focus on any 
current or recent research; or the drug company did not have a product 
affected by her research; or although the university received a grant 
from her institute, she was not responsible for extramural funding 
decisions--may be perceived as legal technicalities.
    Section 5501.109(c)(1)(ii) addresses this inherent perception 
problem and solves the difficulty of evaluating scientific content 
under the ``relatedness'' test by targeting the prohibition to those 
sources of compensation for teaching, speaking, and writing activities 
that are most directly connected to these identified problems, i.e., 
substantially affected organizations, supported research institutions, 
health care providers or insurers, or related trade, professional, or 
similar associations. These sources of compensation by definition have 
interests that are affected by NIH programs, policies, and operations 
and may be perceived as exerting influence on an employee's 
governmental actions whenever a financial relationship exists. Recent 
press accounts alleging NIH employee participation as compensated

[[Page 5549]]

industry spokespersons or as authors of articles or other presentations 
that purport to endorse the benefits of specific products highlight 
this concern. Moreover, these entities, whether in industry or 
academia, are among those most likely to ask an NIH employee to speak 
or write on technical subjects related to their official duties, thus 
presenting the analytical quandary previously described when applying 
the ``subject matter'' part of the ``relatedness'' test in section 807.
    Although stringent limitations on outside activities have been 
imposed, the Department is especially mindful of the need for 
substantive interaction within the scientific community. As the 
National Academy of Sciences has stated:

    [S]cience is inherently a social enterprise--in sharp contrast 
to a popular stereotype of science as a lonely, isolated search for 
the truth. With few exceptions, scientific research cannot be done 
without drawing on the work of others or collaborating with others. 
... The object of research is to extend human knowledge of the 
physical, biological, or social world beyond what is already known. 
But an individual's knowledge properly enters the domain of science 
only after it is presented to others in such a fashion that they can 
independently judge its validity. This process occurs in many 
different ways. Researchers talk to their colleagues and supervisors 
in laboratories, in hallways, and over the telephone. They trade 
data and speculations over computer networks. They give 
presentations at seminars and conferences. They write up their 
results and send them to scientific journals, which in turn send the 
papers to be scrutinized by reviewers. After a paper is published or 
a finding is presented, it is judged by other scientists in the 
context of what they already know from other sources. Throughout 
this continuum of discussion and deliberation the ideas of 
individuals are collectively judged, sorted, and selectively 
incorporated into the consensual but ever evolving scientific world 
view. In the process, individual knowledge is gradually converted 
into generally accepted knowledge. * * * The social mechanisms of 
science do more than validate what comes to be known as scientific 
knowledge. They also help generate and sustain the body of 
experimental techniques, social conventions, and other ``methods'' 
that scientists use in doing and reporting research. * * * Because 
they reflect socially accepted standards in science, their 
application is a key element of responsible scientific practice.

National Academy of Sciences, On Being a Scientist. (Washington, D.C.: 
National Academy Press, 1994). Therefore, it is important to observe 
that the impact of the regulatory ban on outside activities is 
mitigated in several significant respects, through a transition period, 
a waiver provision, textual exceptions, and future actions that the 
Department has committed to undertake.
    First, the prohibition provides for a grace period to allow 
employees responsibly to conclude outstanding obligations. Employees 
may continue to engage in outside activities that would otherwise be 
prohibited for a period not to exceed 30 days from the effective date 
of the rule, and extensions of time for a maximum of 90 days from the 
effective date may be granted for good cause.
    Second, a process exists under Sec.  5501.106(e) for the designated 
agency ethics official to waive the application of the across-the-board 
rule in appropriate circumstances.
    Third, as to the teaching, speaking, writing, and editing 
restrictions, it should be stressed that the ban reaches only 
compensated activities; travel reimbursement will be permitted.
    Fourth, the NIH has determined that current policies and practices 
governing permissible official duty activities involving speaking or 
lecturing should be revised. Consequently, the NIH has decided to 
develop means to ensure that NIH scientists' knowledge continues to be 
conveyed to the scientific community at large. The NIH will act 
administratively to accommodate, as official duty activities, those 
speaking opportunities that might previously have been considered less 
directly connected to agency mission. The NIH will consider expanding 
the availability of scientists to appear before relevant audiences and 
organizations at government expense, when appropriate, or through 
agency acceptance of travel reimbursement from non-Federal sources 
under 31 U.S.C. 1353, where permitted.
    Fifth, the regulations contain exceptions designed to facilitate 
professional obligations and certain academic endeavors. These 
exceptions partially lift the absolute bar on outside activities with 
supported research institutions and other organizations (except 
substantially affected organizations) described in Sec.  
5501.109(c)(1), but they do not affirmatively permit an activity that 
would otherwise violate Federal law or regulations, including 5 CFR 
parts 2635, 2636, and 5501. Specifically, exceptions are provided that 
will allow participation in pursuits that are critical to maintaining 
technical proficiency, professional licenses, and academic credentials 
and disseminating scientific information, such as teaching involving 
multiple presentations at academic institutions, providing individual 
patient care, moderating or presenting at continuing professional 
education programs, and writing or editing scientific articles, 
textbooks, and treatises that are subjected to scientific peer review 
or a substantially equivalent editorial review process. The rule also 
contains exceptions for employment with, providing professional or 
consultative services to, or teaching, speaking, writing, or editing 
for, a political, religious, social, fraternal, or recreational 
organization. The rule also recognizes that individuals may be employed 
in non-problematic roles with outside entities such as providing 
clerical assistance, janitorial services, or unskilled labor.
    The exception for moderating or speaking at continuing professional 
education programs extends not only to sessions conducted for members 
of professions that impose licensure and program accreditation 
requirements, but includes events at which scientists, such as chemists 
or microbiologists, gather to share new insights and findings in their 
respective fields, provided that the educational events are 
substantially equivalent to those frequented by their professionally 
licensed colleagues.
    The licensing and program accreditation infrastructure established 
by certain learned professions generally has not been adopted by 
doctorates in scientific research. Most professional groups have 
promulgated standards for their educational programs that are designed 
to avoid conflicts, commercial promotion, and control by industry 
sponsors. See, for example, American College of Surgeons Guidelines for 
Collaboration of Industry and Surgical Organizations in Support of 
Research and Continuing Education, available at www.facs.org/fellows_info/statements/st-36.html; American Society of Consultant Pharmacists 
Guidelines for Industry Support of ASCP Educational Activities, 
available at www.ascp.com/public/pr/guidelines/indsupp.shtml; and the 
discussion generally in the Food and Drug Administration publication 
entitled ``Final Guidance on Industry-Supported Scientific and 
Educational Activities; Notice'' at 62 FR 64074, Dec. 3, 1997. These 
groups police educational activities at which NIH employees may be 
asked to speak through strict policies limiting industry support to 
unrestricted educational grants. To provide a similar assurance in all 
contexts, including at gatherings convened by scientists and 
researchers from various academic disciplines, the regulations 
explicitly negate the exception if a substantially affected 
organization plays a role other than that of a donor of an unrestricted 
educational grant.

[[Page 5550]]

    In addition, in order to ensure that the exception is limited to 
continuing professional education or similar programs, as intended, and 
not interpreted to encompass every speaking occasion that has some 
educational content or instructional benefit, the regulation confines 
the exception to accredited programs or, in the case of a profession or 
academic discipline whose members are not subject to licensure and 
which does not have program accreditation requirements, an education 
program determined by the designated agency ethics official or his 
designee or, in consultation with the designated agency ethics official 
or his designee, the NIH Director or the NIH Director's designee to be 
substantially equivalent to an accredited continuing professional 
education program.
    In determining substantial equivalency for these purposes, a number 
of factors may be considered. Among them would be whether the education 
program is sponsored by a regional, national, or international 
organization that serves the interests of scientists or researchers in 
a specific discipline (e.g., neuroscientists or experimental 
biologists). Another attribute would be whether, as part of its 
mission, the program sponsor has a stated goal of ensuring that 
audience members remain current with respect to the latest scientific 
developments in their field of interest. Also important is the extent 
to which the sponsor regularly holds meetings that attract presenters 
and panel participants who are renowned for their expertise in the 
topics covered. Similarly critical is whether the education program is 
characterized by sufficient academic rigor and known within the 
scientific community as a venue that enables scientists to disseminate 
and exchange the latest information, particularly, among different sub-
disciplines (e.g., inorganic chemistry as opposed to organic 
chemistry). An education program conducted by a well established 
sponsor that has a longstanding reputation for presenting refereed 
papers and other scientific discourse of high caliber and which 
attracts, from around the globe, attendees of diverse viewpoints within 
the relevant discipline would be the paradigm.
    The regulation includes an exception for writing activities 
subjected to scientific peer review or substantially equivalent 
editorial processes. Scientific peer review is commonly understood in 
principle, with the primary purposes being to ``evaluate scientific and 
technical merit,'' ``screen for obvious errors in methodology and 
reasoning,'' and ``ensure that the research is novel and ``important''' 
within the relevant discipline. Effie J. Chan, Note, The ``Brave New 
World'' of Daubert: True Peer Review, Editorial Peer Review, and 
Scientific Validity, 70 N.Y.U. L. Rev. 100, 119 n.121 (1995). The 
concept of scientific peer review also generally involves the 
application of standards governing scientific misconduct and research 
integrity. E.g., International Committee of Medical Journal Editors, 
Uniform Requirements for Manuscripts Submitted to Biomedical Journals: 
Writing and Editing for Biomedical Publication (2004), available at 
http://www.icmje.org. HHS recognizes that actual editorial processes 
may vary in practice, for example, in terms of number of levels of 
review and the extent to which the publisher or journal relies on 
outside reviewers. Therefore, the exception is intended to cover 
writings subjected to any scientific peer review or substantially 
equivalent processes that are designed to ensure that the material 
disseminated is scientifically accurate, has technical merit, 
demonstrates originality, evinces an important contribution to the body 
of knowledge, and adheres to research and scientific conduct standards 
generally accepted within the relevant discipline.

Section 5501.110 Prohibited Financial Interests Applicable to Employees 
of the National Institutes of Health

    New Sec.  5501.110 creates, for employees of the NIH who file 
either a public or confidential financial disclosure report, a 
prohibited financial holdings regulation that bars owning a financial 
interest, such as stock, in substantially affected organizations. In 
accordance with 5 CFR 2635.403(a), the Department has determined that 
the acquisition or holding of these financial interests would cause a 
reasonable person to question the impartiality or objectivity with 
which NIH programs are administered.
    Public and confidential filers by definition are senior officials 
or other employees whose duties involve the exercise of significant 
discretion in certain critical areas of agency operations. Section 
5501.110 is similar to an existing financial holdings restriction 
applied to FDA employees that dates back to 1972. The current version 
of the restriction applicable to FDA employees was part of the HHS 
Supplemental Ethics Regulation as it was first issued in 1996, and is 
found at Sec.  5501.104. Since the enactment of the HHS Supplement, the 
work of the NIH has been determined to pose similar unique challenges 
for the agency ethics program. NIH employees, like FDA employees, 
participate in particular matters that substantially affect significant 
sectors of the United States economy, in particular, the 
pharmaceutical, medical device, and biotechnology industries. Even the 
food and beverage sector that is more associated with the FDA has begun 
to come within the NIH sphere through research on obesity and other 
diet-related conditions. Many NIH employees have access to confidential 
commercial information and trade secrets, the misuse of which can have 
serious financial consequences. Unethical conduct in this context, 
including misuse of information, could have serious public health 
consequences. In sum, the NIH has a compelling need to monitor, and 
impose reasonable prophylactic restrictions on, the financial ties 
between NIH employees and the vast number of entities that are 
substantially affected by NIH programs.
    Therefore, Sec.  5501.110 creates a prohibited financial holdings 
rule that serves the above-described interests and relieves the NIH of 
the significant administrative burden of resolving many conflict of 
interest problems on a case-by-case basis. However, Sec.  5501.110 is 
narrowly tailored in three important respects. First, Sec.  5501.110 
distinguishes between interests in organizations that are substantially 
affected by NIH programs, policies, or operations, i.e., those 
organizations principally involved in the pharmaceutical and 
biotechnology industries, and those interests that are not in such 
organizations. Second, Sec.  5501.110 imposes the strictest limitations 
on employees whose duties carry the greatest potential for conflict of 
interest, i.e., those employees who are required to file either a 
public financial disclosure statement or a confidential financial 
disclosure statement, pursuant to 5 CFR part 2634. Third, Sec.  
5501.110 incorporates a mechanism to exclude certain confidential 
filers or classes of confidential filers from the prohibited holdings 
requirement if the across-the-board prohibition is deemed unnecessary 
to ensure public confidence in the integrity of agency operations and 
their positions do not fall in certain enumerated categories nor entail 
responsibilities that are likely to pose conflicts related to financial 
holdings.
    While the new rule prohibits public and confidential filers at the 
NIH from holding or acquiring any interest in a substantially affected 
organization, all other NIH employees (as well as those confidential 
filers excluded from

[[Page 5551]]

coverage by the rule) will be subject to a $15,000 limit on the holding 
or acquisition of such interests and certain other restrictions. 
Currently, in order to avoid a conflict of interest, these employees 
must monitor their work activities and know the identity and value of 
their holdings at any given moment. A regulatory exemption at 5 CFR 
2640.202 allows employees to work on specific party matters, such as 
contracts, grants, investigations, or clinical trials, as long as the 
value of the affected stocks does not exceed $15,000, and on a general 
matter, such as rulemaking or policy determination, if the value of any 
one affected holding does not exceed $25,000, subject to a $50,000 cap 
when cumulating all affected interests. However, if the asset value 
exceeds these thresholds, employees must recuse from official 
participation in particular matters that would have a direct and 
predictable effect on the financial interests of the companies in which 
they are invested. These monitoring and recusal responsibilities are 
exacerbated by the increasing number of mergers, acquisitions, joint 
ventures, partnerships, intellectual property licensing agreements, and 
even name changes, particularly within the biotechnology and 
pharmaceutical industries that, on any given day, may make it difficult 
to know whether one has a conflict to avoid. By imposing a $15,000 cap 
on such holdings, the employee, the NIH, and the public can be better 
assured that the participation by NIH employees in their respective 
work assignments, whether specific or general in scope, does not pose a 
conflict created by stock holdings. The $15,000 cap will adjust 
automatically to any change in the de minimis exemption limit for 
matters involving parties at 5 CFR 2640.202(a).
    Although the dollar amounts in the two provisions are linked, 
substantively they differ in an important respect. Not all financial 
interests valued at $15,000 or less will be covered by the OGE 
regulatory exemption. For example, although the NIH exception permits a 
non-filer to hold a financial interest in a non-publicly traded company 
(assuming all the other criteria in the section are also satisfied), 
the OGE regulatory exemption only applies to securities in publicly 
traded companies or long-term Federal Government or municipal 
securities. Accordingly, NIH employees are reminded that even though 
Sec.  5501.110 may allow retention of certain assets that would 
otherwise be prohibited, the financial interest may nevertheless be 
problematic under 18 U.S.C. 208. Absent a regulatory exemption that 
specifically addresses the financial interest, a recusal, a 
divestiture, or an individual waiver may be required.
    The prohibitions relating to financial interests will apply to the 
spouses and minor children of NIH employees. Inasmuch as the financial 
interests of these relatives are imputed to employees and pose 
identical conflicts concerns, the Department has made the 
determination, pursuant to 5 CFR 2635.403(a), that there is a direct 
and appropriate nexus between this prohibition as applied to spouses 
and minor children and the efficiency of the service. It should be 
noted, however, that Sec.  5501.110 is not intended to prohibit 
employment by spouses and minor children in the affected industry 
sectors, although any actual or apparent conflicts of interests created 
as to NIH employees by such employment must be resolved under other 
applicable provisions of 5 CFR part 2635.
    Section 5501.110(e)(1) permits the holding of financial interests 
acquired through employment with a substantially affected organization. 
This exception is intended to parallel the FDA provision at amended 
Sec.  5501.104(b)(1) that excepts pensions or other employee benefits 
derived from employment with a significantly regulated organization. 
This exception is necessary to facilitate recruitment of qualified 
scientific and professional personnel, many of whom may have begun 
their careers in industry. Because NIH employees, as opposed to spouses 
and minor children of employees, are generally prohibited under Sec.  
5501.109 from engaging in current employment with a substantially 
affected organization, the provision will primarily apply to financial 
interests acquired through employment prior to joining the agency. 
However, it may apply in the limited number of instances in which NIH 
employees are permitted to have a concurrent employment relationship 
with a substantially affected organization, such as a clerical position 
excepted by Sec.  5501.109(c)(3)(iii), that may provide a pension or 
other employee benefits.
    Section 5501.110(e)(2) excepts financial interests in substantially 
affected organizations that result from holding an interest in certain 
publicly traded or publicly available investment funds or a widely held 
pension or similar fund. To qualify for this exception, the fund must 
not be self-directed and must not have an express policy or practice of 
concentrating its investments in substantially affected organizations. 
For example, a widely diversified mutual fund generally would be a 
permissible holding, even though the fund holds some stocks of 
substantially affected organizations whereas a sector fund that focuses 
on the pharmaceutical industry would not.
    Furthermore, Sec.  5501.110(e)(3) provides NIH employees with the 
opportunity to request an individual exception for certain financial 
interests. Where the employee can demonstrate exceptional 
circumstances, the NIH may allow an individual to hold a financial 
interest in a substantially affected organization, provided that the 
application of the financial interest prohibition is not necessary to 
ensure public confidence in the impartiality or objectivity with which 
NIH programs are administered or to avoid a violation of 5 CFR part 
2635.
    Pursuant to 5 CFR 2635.403(d), an employee shall be given a 
reasonable period of time, considering the nature of the employee's 
particular duties and the nature and marketability of the interest, to 
divest a financial interest prohibited by paragraphs (c) and (d) of 
this section. Except in cases of unusual hardship, as determined by the 
NIH deputy ethics counselor in consultation with the designated agency 
ethics official or his designee, a reasonable period shall not exceed 
90 days from the date divestiture is first required. For those current 
employees who will be affected immediately by the promulgation of this 
rule, it is anticipated that individual requests for divestiture 
periods of up to 180 days will be granted upon an adequate showing of 
good cause, such as difficulties in disposing of non-publicly traded 
assets or a significant adverse financial impact on the employee, the 
company, or the securities market. During any period in which the 
employee continues to hold the prohibited financial interest, the 
employee remains subject to the restrictions imposed by subpart D of 5 
CFR part 2635.
    As specified in 5 CFR 2635.403(e), an employee who is required to 
sell or otherwise divest a financial interest and thereby incurs a 
capital gain may be eligible to defer the tax consequences of 
divestiture under subpart J of 5 CFR part 2634. This special tax 
treatment is unavailable if the employee fails to comply with the 
requisite procedures and disposes of the financial interest prior to 
receiving a certificate of divestiture from the Director of the Office 
of Government Ethics.
    Section 5501.110(g), for the reasons discussed previously in 
connection with the FDA provision at Sec.  5501.104(c), specifies that 
the requirement to divest a financial interest prohibited by

[[Page 5552]]

paragraphs (c) and (d) of this section is not triggered until the due 
date for reporting prohibited financial interests under the applicable 
financial disclosure rules in parts 2634 and 5502 of this title.

Section 5501.111 Awards Tendered to Employees of the National 
Institutes of Health

    Section 5501.111 prohibits senior NIH employees and other employees 
with official responsibility for matters affecting donor organizations 
from accepting certain awards from outside sources. For these purposes, 
the term ``senior employee'' includes, among others, the NIH Director 
and Deputy Director and the Director, Deputy Director, Scientific 
Director, and Clinical Director of each Institute and Center within 
NIH. Other employees of equivalent levels of responsibility will be 
subject to the award prohibition if their positions are comparable in 
terms of authority or influence over agency programs and operations, 
and they receive written notification of their designation as a 
``senior employee'' by the designated agency ethics official or the NIH 
Director. (A list of ``senior employees'' so designated will be 
maintained by the designated agency ethics official and the NIH and 
disseminated through program instructions or manual issuances.) 
Further, any award permitted under 5 CFR 2635.204(d) that is not 
prohibited by this section cannot be accepted without prior written 
approval.
    Section 5501.111 will have no impact on any employee's ability to 
receive an award that consists only of a plaque or certificate or other 
item with little intrinsic value that is intended solely for 
presentation purposes. Such items are not deemed to constitute a gift 
for purposes of the Standards of Ethical Conduct, 5 CFR part 2635. 
Likewise, an employee would be permitted to accept free attendance and 
food and other refreshments at an event in which the employee is 
presented a plaque or certificate or other item with little intrinsic 
value under circumstances permitted by 5 CFR 2635.204, such as a 
speaking engagement or widely attended gathering. Moreover, under 
certain circumstances, an employee may be permitted by the agency to 
travel at the award donor's expense to an event at which the employee 
is to be honored. If travel reimbursement is accepted from a non-
Federal source by the employee's agency, under the authority of 31 
U.S.C. 1353 and 41 CFR chapter 304, in conjunction with the employee's 
receipt of an award in recognition of meritorious public service that 
is related to the employee's official duties, the reimbursement of such 
expenses to the agency is not a personal gift to the employee and hence 
not an award or incident of an award for purposes of 5 CFR 2635.204 or 
this section.
    Specifically, Sec.  5501.111(b) mandates that a senior employee 
will not be permitted to accept a gift with an aggregate market value 
of more than $200, or that is cash or an investment interest, that is 
an award or incident to an award given because of the employee's 
official position or from a prohibited source. Moreover, it provides 
that an employee, other than a senior employee, cannot accept such a 
gift from a person, organization, or other donor that: Is seeking 
official action from the employee, any subordinate of the employee, or 
any agency component or subcomponent under the employee's official 
responsibility; does business or seeks to do business with any agency 
component or subcomponent under the employee's official responsibility; 
conducts activities substantially affected by any agency component or 
subcomponent under the employee's official responsibility; or is an 
organization a majority of whose members fall into one of the above 
categories. In other words, an NIH employee may not accept a cash award 
or one valued at more than $200 that is tendered by a donor that has 
matters pending under the employee's official responsibility, either 
individually or before subordinates in the employee's chain of command, 
irrespective of whether the matter would ever reach the employee for 
advice or decision. Thus, as a practical matter, the rule would not 
affect the ability of a non-supervisory employee to accept gifts under 
5 CFR 2635.204(d), except for the requirement of prior approval. In 
addition, a supervisor who is not a senior employee would be permitted 
to accept gifts allowed under 5 CFR 2635.204(d) that are either given 
to the supervisor because of official position or from a prohibited 
source of the NIH that has no matters under the supervisor's official 
responsibility.
    Section 5501.111(b) departs from executive branch uniformity with 
respect to the treatment of awards. It imposes a stricter gift standard 
by partially limiting the applicability of an exception to the gift 
restrictions in subpart B of part 2635 of this title. In the preamble 
to the final rule that established the Standards of Ethical Conduct for 
Employees of the Executive Branch, OGE expressed concern about using 
the supplemental ethics regulation process as a means for one agency, 
for example, to bar all its employees, without regard to the nature of 
their duties, from accepting anything from a regulated entity. 
Permitting agencies to change the basic rules would ``portend * * * an 
ethics program destined to fall short of meeting the President's goal 
of a uniform set of standards of conduct for all executive branch 
employees.'' 57 FR 35012, Aug. 7, 1992. Specifically, OGE stated as 
follows:

    Section 2635.105 [of title 5] permits supplemental regulations 
``which the agency determines are necessary and appropriate, in view 
of its programs and operations, to fulfill the purposes of this 
part'' and that are ``(1) in the form of a supplement * * * and (2) 
in addition to the substantive provisions of this part.'' The 
requirement that they be ``in addition'' means that the basic 
provisions will apply and that a supplemental regulation can add 
something more, such as an additional gift exception, but cannot be 
used to negate or revoke the provisions of this part. The uniformity 
required by the Executive order cannot be achieved if agencies can 
pick and choose which provisions they adopt or override.

57 FR 35010, Aug. 7, 1992.

    As a result of the high profile research activities conducted and 
supported by the NIH and the significant contributions by NIH 
scientists and administrators in their respective fields, these 
employees are considered for awards by philanthropic foundations, 
professional associations, industry, academia and others with some 
frequency. The Blue Ribbon Panel, in particular, observed an increasing 
number of awards established by universities that have received grants 
from family funds for this purpose, stating:

    The growth in the number of these awards has been attributed to 
many factors, including the wish to honor worthy scientists in new 
and emerging fields and the goal of individuals and charitable 
organizations to boost their scientific credentials by identifying 
themselves with and rewarding first-class scientists. Scientists who 
receive these awards are frequently required to prepare a lecture as 
an ``acceptance speech.'' The cash prizes for these awards can range 
from a few hundred to thousands of dollars.

Blue Ribbon Panel Report, p. 51.

    Reviewing these awards on a case-by-case basis presents a number of 
difficulties. Individual award determinations currently require the 
agency to evaluate the extent to which the award donor has interests 
that may be substantially affected by the performance or nonperformance 
of the honoree's official duties. The Acting Director of OGE in a 
statement on May 18, 2004, before the House Committee on Energy and 
Commerce Subcommittee on Oversight and Investigations (OGE

[[Page 5553]]

Statement) established a list of factors for agency officials to 
consider when providing advice on acceptance of awards, including 
factors related to whether an office head is likely to become involved 
in matters substantially affecting the interests of the particular 
source, and whether the primary purpose of a payment is to honor the 
employee for meritorious public service or achievement, or to 
compensate the employee for services as a speaker. See Statement of 
Marilyn L. Glynn, Acting Director, OGE, on NIH Ethics Concerns: 
Consulting Arrangements and Outside Awards Before the Committee on 
Energy and Commerce Subcommittee on Oversight and Investigations, 
United States House of Representatives on May 18, 2004, available on 
the OGE Web site as an attachment to DAEOGram DO-04-011 at http://www.usoge.gov/pages/daeograms/dgr_files/2004/do04011.html. The 
reviewer must inquire whether it is reasonable to assume that the 
honoree may become involved in a matter substantially affecting the 
interests of the donor, or whether the chance of such intervention is 
simply a remote and speculative possibility. Moreover, as recognized in 
the OGE Statement on awards:

    [I]t may not always be immediately apparent to employees and 
agency officials whether a particular offer from an outside source 
should be viewed as a gift subject to the awards exception or as 
compensation for a speaking activity. This is especially true where 
an employee is offered something of value in connection with a 
``lectureship'' or ``lecture award'' sponsored by an outside 
organization. In some instances, it may not be clear whether the 
real intent of the payment is to honor the employee for meritorious 
public service or achievement, or to compensate the employee for 
providing a speech on a subject of interest to the sponsor or the 
intended audience.

OGE Statement, p. 7.

    Although OGE has provided a number of evaluative factors to 
consider in making these determinations, a bright-line rule relieves 
the NIH of the significant administrative burden of resolving these 
issues on a case-by-case basis and avoids the potential for adverse 
public perception that may arise when civil servants receive payments 
from outside sources. The Government generally has a legitimate 
interest in avoiding even the perception that its decisions are 
influenced by outside interests. As indicated by recent experience, 
this interest is particularly acute in an agency that is the 
``principal steward'' of the national investment in biomedical 
research.
    The Department is also mindful of the need to attract and retain 
preeminent scientists and administrators. As stated by the Blue Ribbon 
Panel:

    Recognition is a critical incentive for motivating scientists. 
Awards resulting from the critical evaluation and assessment of an 
individual's or group's work or career by peers, including 
distinguished scientists, hold considerable value to the recipients. 
Awards not only raise the visibility of the scientist, but also 
enhance the reputation of his or her institution and research area.

Blue Ribbon Panel Report, p. 51. It is important, therefore, to note 
that the rule bars only the receipt of a gift with an aggregate market 
value of more than $200, or that is cash or an investment interest, 
tendered as an award or incident to an award. The intangible honor that 
inheres in the recognition as an award recipient, where unaccompanied 
by gifts having a market value or involving cash or cash equivalents, 
remains an achievable goal unaffected by the prohibition in Sec.  
5501.111(b).
    Moreover, under Sec.  5501.111(c), the NIH Director (or the 
Secretary, with respect to awards offered to the NIH Director), with 
the approval of the designated agency ethics official, may grant a 
written exception to the prohibition in Sec.  5501.111(b) to permit an 
employee to accept an award if: (1) The NIH Director determines that 
acceptance of the gift will further an agency interest because it 
confers an exceptionally high honor in the fields of medicine or 
scientific research, for example, the Nobel Prize in Physiology or 
Medicine or the Lasker Medical Research Award; (2) absent the 
prohibition, the employee would have been permitted to accept the gift 
under 5 CFR part 2635; and (3) the designated agency ethics official 
determines that the application of the prohibition is not necessary to 
ensure public confidence in the impartiality or objectivity of NIH 
programs or to avoid a violation of 5 CFR part 2635.
    The rule also specifies that no NIH employee shall accept an award 
under 5 CFR 2635.204(d) or Sec.  5501.111 unless prior written approval 
has been granted. The approval must be in accordance with procedures 
specified by the designated agency ethics official, or with the 
concurrence of the designated agency ethics official, the NIH Director 
or the NIH Director's designee. These procedures are not specified in 
the regulation because the requirements for issuing supplemental 
standards of conduct do not apply to internal agency procedures for 
documenting or processing any determination, approval, or other action 
required by supplemental regulations. 5 CFR 2635.105(c)(2)(ii). 
Nevertheless, HHS anticipates that such procedures will prescribe a 
number of steps of review and may take the following form.
    First, the award would be pre-screened and evaluated by an 
independent advisory committee, which would advise on whether the award 
constitutes a bona fide award given for meritorious public service or 
achievement as part of an established program of recognition under the 
criteria specified in the Standards of Ethical Conduct, 5 CFR 
2635.204(d)(1)(i) and (ii). In advising whether an award is bona fide 
for these purposes, the advisory committee would evaluate whether, 
under all the circumstances, an award program is constituted by the 
donor primarily to provide gratuitous honorific recognition of 
achievement or whether it is primarily compensatory in nature, for 
example, to obtain a speaker for a lecture, a teacher for a seminar, or 
a presenter or panelist for a symposium.
    Second, if the independent advisory committee advises that the 
award is part of a bona fide program of recognition for meritorious 
public service or achievement, the receipt of the award by an 
individual employee would be submitted for internal peer review by the 
NIH Ethics Advisory Committee (NEAC) (or other successor body 
designated by the NIH Director) for its recommendation to the NIH 
deputy ethics counselor. To be accepted, the award would have to 
receive an affirmative recommendation by the NEAC. In the case of an 
award offered to the NIH Director, the Director of the National Cancer 
Institute, or other political appointee, the recommendation of the NEAC 
would be forwarded to the designated agency ethics official.
    Third, if the independent advisory committee advises that the award 
is part of a bona fide program of recognition for meritorious public 
service or achievement and the receipt of the award by an individual 
employee has been recommended by the NEAC, the NIH deputy ethics 
counselor (or the designated agency ethics official in the case of an 
award to the NIH Director, the Director of the National Cancer 
Institute, or other political appointee) would review the 
recommendations and could approve the receipt of the award, if it is 
determined that acceptance of the award is not prohibited by statute or 
Federal regulation, including 5 CFR part 2635 and this part. The 
approving official could determine that even where an award meets the 
above-described criteria, it is in the agency's interest to impose 
conditions on the employee's

[[Page 5554]]

acceptance of the award to ensure public confidence in the impartiality 
or objectivity of agency programs. Such conditions could include 
limiting the type, character, or amount of the award or incidents of 
the award and imposing a period of disqualification greater than the 
12-month period described at Sec.  5501.112.
    Section 5501.111(d) provides that if an employee accepts an award 
without prior approval as required by this section, the employee may be 
required, in addition to any penalty provided by law and applicable 
regulations, to forfeit the award by returning it to the donor. If an 
employee accepts a prohibited award, the employee shall be required, in 
addition to any penalty provided by law and applicable regulations, to: 
reject the award and instruct the donor to strike the honoree's name 
from any list of award recipients; remove the recognition from the 
employee's r[eacute]sum[eacute] or curriculum vitae; return any 
tangible indicia of the recognition to the donor; and forfeit the award 
by returning it to the donor.

Section 5501.112 One-Year Disqualification of Employees of the National 
Institutes of Health From Certain Matters Involving an Award Donor

    Section 5501.112 bars any employee who has, within the last year, 
accepted an award permitted under 5 CFR 2635.204(d) or Sec.  5501.111 
from participating in any particular matter involving specific parties 
in which the donor is or represents a party unless authorized to do so 
under 5 CFR 2635.502(d). This provision is necessary to protect the 
public's confidence in the agency's programs by ensuring that agency 
employees do not participate officially in specific party matters 
involving any person or entity that has in the recent past given an 
award to the employee.

B. Supplemental Financial Disclosure Regulations

    New part 5502 reinstates an annual reporting requirement for 
employees with approved outside activities. Its primary purpose is to 
allow agency management to review an array of approved activities to 
ensure that employees have complied with applicable laws and 
regulations, and to ensure that an approved activity continues to meet 
the standard for approval. For example, where an employee's official 
duties have changed since an activity was originally approved, or where 
a company with which an employee has an outside activity has merged 
with, or been acquired by, another company that can be affected by the 
employee's official duties, the agency would need to reevaluate a 
previously approved activity. The annual reporting requirement is 
intended to facilitate that review and ensure that changed 
circumstances do not render a previously approved activity improper.
    Prior to 1996, the Department, pursuant to 45 CFR 73.735-709, 
required employees to submit a report of outside activities on an HHS 
Form 521 by September 10 of each year with respect to the previous 12 
months ending August 31. The HHS Standards of Conduct Regulations at 45 
CFR part 73 were largely superseded by the OGE executive branch-wide 
rules on financial disclosure, 5 CFR part 2634, and employee conduct, 5 
CFR part 2635. The OGE regulations permitted agencies to promulgate 
regulations that would supplement each part, pursuant to 5 CFR 2634.103 
and 2635.105. However, at the time the HHS Supplemental Ethics 
Regulation was issued, the Department did not draft a supplemental 
provision to carry forward the annual outside activity reporting 
requirement. The submission of one outside activity request form, HHS 
Form 520, was considered sufficient to screen for conflicts and to 
educate the employee about potential ethical concerns. To meet 
paperwork reduction goals, the annual filing of an outside activity 
report was discontinued.
    In the preamble discussion of the outside activity prior approval 
requirement in 5 CFR 5501.106(d), the Department stated as follows:

    The Department will continue to employ HHS Form 520 as both a 
prior approval request form and a record of the disposition by the 
approval official. * * * No provision is made in these regulations, 
however, for an annual reporting of outside activities submitted on 
HHS Form 521, as previously required by 45 CFR 73.735-709. That 
section elicited an annual written verification whether the work or 
activity described in the original request was actually performed 
and required the employee to specify the amount of time spent and 
whether the activity would continue unchanged. Because the HHS Form 
520 contains a blank for specifying duration and any substantive 
change in the scope of the approved activity would constitute a new 
activity requiring submission of another HHS Form 520, the annual 
report appears to be unnecessarily duplicative. Moreover, the 
information requested would, in any event, form the basis of a 
responsible dialogue between employees and supervisors concerning 
workload allocation and the avoidance of conflicts. The minimal 
benefit to be derived from an annual report does not outweigh the 
considerable burden involved in collecting, tracking, and reviewing 
the forms. Accordingly, the requirement for filing an annual HHS 
Form 521 expires upon the effective date of this rule.

61 FR 39762 (July 30, 1996).
    Developments, both technological and otherwise, since that time now 
tip the scale of burdens and benefits differently. Although the burden 
on both the agency and its employees remains significant, advances in 
computer software have reduced this concern considerably. 
Electronically fillable forms and document tracking programs facilitate 
the process to a degree not previously attainable. Given the nature of 
any cumulative list, it remains true that the HHS Form 521 annual 
report of outside activities may duplicate in certain respects the 
information collected in an employee's original request for prior 
approval on an HHS Form 520 or listed on a public (SF 278) or 
confidential (OGE Form 450) financial disclosure report. Moreover, 
because approval of an outside activity will be effective for only one 
year under new Sec.  5501.106(d)(5), employees will be required to 
renew long term activities on an annual basis. Nevertheless, despite 
the potential for overlap in some cases, a number of compelling reasons 
support the decision to reinstate the HHS Form 521.
    First, not all employees who perform approved outside activities 
are public or confidential report filers. For these non-filers, the 
annual report may provide the agency the only opportunity to verify 
whether and on what terms the employee actually undertook the activity 
for which approval was requested.
    Second, after the HHS 521 was discontinued, the system relied on 
each employee to file a new approval request whenever a substantive 
change occurred in the employee's duties or the scope of the approved 
activity. This expectation may have been unrealistic, especially in 
light of recent allegations that a number of NIH employees may have 
failed to submit even initial approval forms for their outside 
consulting activities. Accordingly, enforcement of the ethics 
requirements would be improved considerably by placing an annual focus 
on outside activities where each employee would be individually 
notified of the outside activity rules, provided blank forms (or 
directed to an electronic version), and required to submit the 
necessary information by a date certain, and each supervisor would be 
engaged actively in the effort.
    Third, in a rapidly changing economy, every opportunity to assist 
employees in screening for potential conflicts is valuable. Employees 
may have undertaken activities that were

[[Page 5555]]

approved based on information that subsequently changed in a material 
way and which may call into question the continuing appropriateness of 
the activity. For example, due to mergers, acquisitions, and changed 
business plans, companies not previously engaged in certain activities 
related to an employee's official duties may become engaged in such 
activities. Likewise, an employee's official duties change over time, 
potentially creating a conflict with an outside activity that did not 
previously exist at the time of the initial request.
    Fourth, the information requested on, as well as the statistical 
data derived from, the annual report will assist the Department in 
meeting its obligation to evaluate periodically the adequacy and 
effectiveness of the agency's conduct regulations, financial disclosure 
systems, and enforcement efforts and to take prompt corrective action 
to remedy actual or potential conflict of interest situations. See 5 
CFR 2638.203(b)(10) and (11).

Section 5502.101 General

    Section 5502.101 explains that the regulations in part 5502 apply 
to all employees of the Department of Health and Human Services and 
supplement the Executive Branch Financial Disclosure Regulations 
contained in 5 CFR part 2634. Although the annual report of outside 
activities required by Sec.  5502.102 excludes special Government 
employees from its coverage, the part as a whole is intended to apply 
to all employees, unless otherwise noted. The section is drafted in 
this manner to accommodate any subsequent supplemental financial 
disclosure requirements that may be promulgated.
    In addition, any regulation in part 5502 that is made applicable to 
employees of an HHS component designated as a separate agency under 
Sec.  5501.102(a) applies to employees in a division or region of the 
Office of the General Counsel that principally advises or represents 
that component.

Section 5502.102 Annual Supplemental Report of Outside Employment or 
Activities

    Section 5502.102 requires that employees, other than special 
Government employees, must file an annual report on or before February 
28 of each year with respect to all outside activities that were 
approved during the prior calendar year (including activities 
originally undertaken in prior years and reapproved in the preceding 
calendar year). The report also solicits information of employees who 
have actually performed an outside activity for which prior approval is 
required under part 5501, regardless of whether the employees actually 
obtained such approval.

Section 5502.103 Content of Supplemental Reports

    Section 5502.103 specifies that, in addition to basic identifying 
information, the annual report must include: a list of all outside 
activities for which prior approval is required under part 5501 that 
were approved pursuant to 5 CFR 5501.106(d) or undertaken within the 
reporting period; a statement as to whether the anticipated work 
described in a previously approved activity request was actually 
performed for the person or organization named in the request; for each 
outside activity actually performed, the beginning date of the 
relationship, the date(s) personal services were provided, the total 
number of hours spent and leave used on the activity, and the ending 
date of the activity; for ongoing activities, a statement as to how 
long the activity is anticipated to continue; the type and amount of 
income and/or reimbursements actually received during the reporting 
period and the date paid, or which were not received during the 
reporting period and remain due; a statement as to whether any changes 
occurred or are anticipated with respect to information supplied in the 
original outside activity request; a description of any change in the 
nature, scope or subject matter of any approved activity; and a 
description of any change in the employee's job, duties, or 
responsibilities that occurred after the outside activity was approved.

5502.104 Confidentiality of Reports

    Pursuant to Sec.  107(a)(2) of the Ethics in Government Act, the 
reports filed pursuant to this part are confidential and any 
information required to be provided shall not be disclosed to the 
public. The OGE implementing regulations at 5 CFR 2634.901 specify that 
this requirement applies to supplemental financial information 
requested of individuals who file public financial disclosure reports, 
as well as the information supplied by confidential filers and non-
filers. Section 2634.901(d) further states that the statute leaves no 
discretion on this issue with the agencies. These reports are covered 
under the OGE/GOVT-2 Government-wide executive branch Privacy Act 
system of records, as well as any applicable agency records system.

5502.105 Agency Procedures

    Implementing procedures for the submission and review of any report 
filed under this part may be prescribed by the designated agency ethics 
official or, with the concurrence of the designated agency ethics 
official, any HHS component. These procedures may provide for an 
extension or several extensions of the due date for any report filed 
under this part, for good cause shown, totaling not more than 90 days.

5502.106 Supplemental Disclosure of Prohibited Financial Interests 
Applicable to Employees of the Food and Drug Administration and the 
National Institutes of Health

    Section 5502.106 requires FDA and NIH employees to report 
prohibited financial interests, including those interests that are 
covered by an applicable exception, within 30 days of joining the 
agency, being reassigned from another part of HHS, or acquiring such 
interests, for example, through marriage, gift, or inheritance. New 
entrant public and confidential filers who report such interests on 
their initial SF 278 or OGE 450 financial disclosure forms are not 
required to submit an additional report under this section. Incumbent 
public and confidential filers and non-filers are subject to the 30-day 
reporting requirement whenever a triggering event occurs. Current NIH 
employees newly subject to this requirement initially will have 60 days 
from the effective date of the rule to file.
    This section is intended to implement the prohibited financial 
interest provisions applicable to FDA and NIH employees in 5 CFR 
5501.104(a), 5501.110(c), and 5501.110(d), by requiring immediate 
disclosure of these holdings. Absent such reports, prohibited financial 
interests involuntarily acquired by incumbent public and confidential 
filers or held by filers transferred from other components may not be 
identified until they are disclosed in the annual reporting cycles, 
after several months or a year or more has passed. The prohibited 
financial interests of non-filers would escape detection altogether, 
thus making the $15,000 cap on such holdings largely unenforceable. 
Prior to the issuance of the HHS Supplemental Ethics Regulation in 
1996, the FDA required non-filers to certify that no prohibited 
financial interests above the de minimis amount were held. Since that 
time, non-filers sometimes have been in violation of the prohibited 
holdings regulation because they are not subject to a specific 
reporting requirement.

[[Page 5556]]

    At the same time, the agency recognizes that employees, especially 
in the case of new entrant employees, need a 30-day period in which to 
investigate their financial holdings and determine which of their 
interests are prohibited by the agency. The need for such a 30-day 
period is implicit in the regulations at 5 CFR 2634.201 and 2634.903, 
which provide new entrant public or confidential filers 30 days in 
which to submit their financial disclosure reports.

III. Matters of Regulatory Procedure

Administrative Procedure Act

    These amendments prescribe rules of agency management or personnel 
that are exempt under 5 U.S.C. 553(a)(2) from the requirement for 
notice and comment rulemaking. These amendments also prescribe rules of 
agency practice and procedure governing employee conduct that are 
exempt under 5 U.S.C. 553(b) from the requirement of public notice and 
comment prior to promulgation of a final rule. In addition, with 
respect to NIH employees newly subject to restrictions on outside 
activities, financial holdings, and awards, the persons subject thereto 
have been provided actual notice of the substance of the rule or a 
description of the subjects and issues involved. The steps taken that 
apprise these employees are recounted below.
    The need for supplemental regulations to address NIH ethics issues 
was discussed in public hearings before the United States Senate, 
Committee on Appropriations, Subcommittee on Labor, Health and Human 
Services, Education and Related Agencies on January 22, 2004. The NIH 
Director convened a Blue Ribbon Panel (BRP) in March 2004 and charged 
the panel to review the existing laws, regulations, policies, and 
procedures under which the NIH currently operates regarding: (1) Real 
and apparent financial conflicts of interest of NIH staff where 
compensation or financial benefit from outside sources is received, 
including consulting arrangements and outside awards; and (2) 
requirements and policies for the reporting of NIH staff's financial 
interests, including which interests are subject to public disclosure, 
and what portion of NIH staff file public disclosures. The BRP was 
directed to make recommendations for improving existing laws, 
regulations, policies, and procedures, as appropriate, to the Advisory 
Committee to the Director, NIH, for deliberation and final 
recommendations to the NIH Director.
    NIH employees were invited to give testimony to the panel, and on 
March 12, 13 and April 1, 5, 2004, the BRP received such oral and 
written testimony. Also, an electronic forum was establish in March 
2004 to collect input from intramural scientists for the BRP's 
consideration. In the end, over 300 NIH employees gave comments to the 
BRP from March to April, 2004.
    The BRP presented its findings to the Advisory Committee to the 
Director at an open meeting on May 6, 2004. In addition, the BRP Co-
Chairs presented the panel's findings to the United States House of 
Representatives, Committee on Energy and Commerce, Subcommittee on 
Oversight and Investigations, on May 12, 2004.
    At the June 22, 2004, hearing of the Oversight and Investigations 
Subcommittee, the NIH Director announced his intention to seek 
supplemental ethics regulations in three areas: outside activities, 
prohibited financial holdings, and awards. These proposals were 
developed after intensive internal reviews of NIH's ethics rules and 
procedures, and based, in part, on recommendations from the BRP. 
Immediately following the hearing, on June 23, 2004, the NIH produced 
talking points summarizing the NIH Director's testimony which were 
circulated to the Directors of the 27 institutes and centers (ICs) that 
comprise the NIH and to the IC Deputy Ethics Counselors. The talking 
points equipped NIH leadership to answer inquiries from NIH employees 
regarding the proposed changes.
    The ICs also took action to educate their employees about the 
proposed changes. On July 20, 2004, the National Cancer Institute, the 
largest IC, held an all-hands meeting where the Director of the NIH 
Ethics Office (NEO) presented the proposed changes and answered 
employees' questions. On July 28, 2004, the Clinical Center held a 
briefing for its management on the proposed changes where the NEO 
Director again led the discussion and answered questions.
    Starting in early September 2004, the NIH Ethics Advisory 
Committee, the group established by the NIH Director in January 2004 to 
provide peer review of outside activity and award approval requests 
from certain NIH employees, began notifying employees that the proposed 
changes may affect their recently approved outside activities. The NEAC 
notification stated:

    As you know, the NIH is making changes in its ethics program. 
Some changes, such as the creation of the NIH Ethics Advisory 
Committee (NEAC), have already been made. Other changes have been 
proposed.
    In this interim period, the current rules still apply, and 
requests to conduct outside activities are being approved based on 
these rules. You should note that after the new rules are adopted 
and take effect, certain types of outside activities, which may 
currently be approved, may be limited, if not prohibited altogether. 
For example, in contrast to the current rules, the NIH is 
considering prohibiting consulting arrangements with grantees for 
all employees, and not permitting such arrangements with 
pharmaceuticals and biotechnology companies. Membership on corporate 
boards and scientific advisory boards may also be banned. 
Furthermore, compensation in the form of stock or stock options may 
well be prohibited.
    We are giving you this information for planning purposes only. 
If you receive permission to engage in an outside activity and to 
receive the corresponding compensation from that activity, you may, 
of course, proceed with that activity. However, be aware that the 
rules [with respect] to that activity may change in the near future 
and that you will be required to change or adapt your activity to 
those new rules. Please be assured we will do everything we can to 
keep you apprised of changes to policies and procedures as they 
occur during this interim period.

    On September 24, 2004, the NIH Deputy Director sent an all-employee 
memorandum via e-mail to notify NIH employees of the agency's plan to 
seek in effect a one-year moratorium on consulting with pharmaceutical 
and biotechnology companies. The memorandum explained that this step 
was being taken to give the NIH ``time to complete [its] review of 
specific cases, develop effective information systems to track outside 
activities, and develop more effective ethics training programs for 
staff before a final policy is put in place.''
    On November 29, 2004, the NIH Director held a town hall meeting for 
over 180 intramural scientists. At the meeting, the NIH Deputy Director 
gave an overview of the various steps that the NIH has taken to revise 
its ethics program, including a discussion of the proposed regulatory 
changes.
    In addition to the above described steps taken by management to 
keep NIH employees apprised of the proposed changes to the ethics 
program, the NIH in March 2004 created a conflict of interest section 
on its homepage. Employees were notified that up-to-date information on 
the proposed changes to the ethics program would be posted periodically 
on the Web site. Among other informative documents, the NIH posted the 
BRP's report, the NIH Director's June 22 Subcommittee testimony, and 
the September 24 notification. Furthermore, the proposed changes 
received extensive and

[[Page 5557]]

continuous coverage in various daily newspapers and scientific trade 
and professional magazines and journals.
    To the extent that these internal agency regulations governing 
employee conduct have an extra-agency impact, the Department of Health 
and Human Services, pursuant to 5 U.S.C. 553(b)(B), for good cause, 
finds that providing notice and utilizing public comment procedures 
prior to promulgation of this interim rule are unnecessary and contrary 
to the public interest. The issues involved in this rulemaking 
primarily affect Federal employees. Those external entities that may 
have an indirect interest in hiring Federal employees, having them own 
stock, or giving them monetary awards are affected marginally. The 
primary effect of the prohibitions contained in these regulations is to 
establish prophylactic rules that preclude certain outside activities, 
financial holdings, and gifts on a uniform basis where many would have 
been prohibited as well under a case-by-case determination process.
    As noted previously, the ethics issues that have engendered these 
regulations have been described extensively in many fora. The 
deliberative process in developing this interim rule has already been 
informed by input from employees, agency management, and members of the 
public in hearings before the NIH Blue Ribbon Panel on Conflict of 
Interest Policies and in testimony before the Senate Committee on 
Appropriations, Subcommittee on Labor, Health and Human Services, 
Education and Related Agencies, and the House Committee on Energy and 
Commerce, Subcommittee on Oversight and Investigations. The public 
through press accounts and the employees through agency notice have 
been well aware that Federal regulation on these matters was impending, 
and an opportunity for their involvement has occurred. NIH employees 
for nearly a year have faced considerable uncertainty and may have 
deferred commitments pending the issuance of an anticipated rule. 
Addressing at this time the ethics issues at the National Institutes of 
Health is of paramount importance to ensure public confidence in the 
scientific and health research conducted and funded by that agency and 
to resolve immediately the uncertainty surrounding employee decisions 
in these matters. In sum, employing the notice and comment procedures 
is unnecessary and contrary to the public interest, in part, because 
equivalent actions have already been taken to inform and involve 
interested parties and further process would not contribute 
substantially to the development of the regulation when balanced 
against the harm that may result from further delay and uncertainty.
    Pursuant to 5 U.S.C. 553(d)(3), the Department of Health and Human 
Services also has determined, for the reasons discussed, that good 
cause exists for dispensing with the requirement of a 30-day delayed 
effective date. Those NIH employees who will be required to terminate 
their existing outside activities or divest currently held financial 
interests are provided transitional periods within which to comply. 
Because the interim revisions predominately affect the NIH ethics 
program and are critically necessary to preserve the integrity of NIH 
programs and operations, a delay in the effective date would be 
contrary to the public interest.
    The public interest is instead served by making additional 
restrictions on the outside activities, financial holdings, and awards 
of NIH employees effective immediately upon publication (with the 
exception of transitional grace periods). The integrity of NIH programs 
has been potentially called into question by public examples of 
employees' outside activities and other financial ties to industry and 
grantee institutions. The Department and NIH are committed to 
correcting these problems through more careful oversight and 
restrictions that will lessen the potential that real or apparent 
conflicts may arise from unanticipated or undetected relationships with 
external organizations. Given that commitment, and the importance of 
implementing the restrictions as promptly as possible, the best 
interests of the NIH, the employees, and the public will be served by 
the immediate effectiveness of this rule.
    Those provisions that apply to allowable holdings of FDA employees 
or gifts received from Indian tribes or Alaska Native villages 
recognize exemptions or relieve restrictions under current law and thus 
are effective upon publication pursuant to 5 U.S.C. 553(d)(1). As to 
other provisions that clarify or update the existing supplemental 
regulation with respect to nomenclature, agency organization, or 
procedure, or that document longstanding or other authoritative 
interpretations, no useful purpose would be served by delaying the 
effective date for those changes.
    Interested persons may submit written comments on this interim 
final rule. The Department of Health and Human Services will review all 
comments that are received on or before April 4, 2005, and consider any 
modifications to this interim rule that appear warranted before 
adopting a permanent final rule on this matter.

Regulatory Flexibility Act

    The Department of Health and Human Services has determined under 
the Regulatory Flexibility Act, 5 U.S.C. chapter 6, that this rule will 
not have a significant economic impact on a substantial number of small 
entities because the rule prescribes personnel provisions that 
primarily affect HHS employees.

Paperwork Reduction Act

    The Paperwork Reduction Act, 44 U.S.C. chapter 35, does not apply 
to these final rule amendments because they do not contain information 
collection requirements that are subject to approval by the Office of 
Management and Budget.

Congressional Review Act

    The Department of Health and Human Services has determined that 
this rulemaking is not a rule as defined in 5 U.S.C. 804, and, thus, 
does not require review by Congress. This rulemaking is related to HHS 
personnel.

Executive Orders 12866 and 12988

    Because this rule relates to HHS personnel, it is exempt from the 
provisions of Executive Orders 12866 and 12988.

List of Subjects

5 CFR Part 5501

    Conflict of interests, Ethics, Executive branch standards of 
conduct, Financial interests, Government employees, Outside activities.

5 CFR Part 5502

    Conflict of interests, Ethics, Government employees, Outside 
activities, Reporting and record keeping requirements.

    Dated: January 25, 2005.
Edgar M. Swindell,
Designated Agency Ethics Official, Department of Health and Human 
Services.

    Dated: January 26, 2005.
Wade F. Horn,
Acting Secretary, Department of Health and Human Services.

    Approved: January 26, 2005.
Marilyn L. Glynn,
Acting Director, Office of Government Ethics.


0
For the reasons discussed in the preamble, the Department of Health and 
Human Services, with the concurrence of the Office of Government 
Ethics, amends chapter XLV of title 5 of the Code of Federal 
Regulations as follows:

[[Page 5558]]

TITLE 5--[AMENDED]

CHAPTER XLV--DEPARTMENT OF HEALTH AND HUMAN SERVICES

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

0
1. The authority citation for part 5501 continues to read as follows:

    Authority: 5 U.S.C. 301, 7301, 7353; 5 U.S.C. App. (Ethics in 
Government Act of 1978); 25 U.S.C. 450i(f); 42 U.S.C. 216; E.O. 
12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 215, as modified by E.O. 
12731, 55 FR 42547, 3 CFR, 1990 Comp., p. 306; 5 CFR 2635.105, 
2635.203, 2635.403, 2635.802, 2635.803.


0
2. Amend Sec.  5501.101 by revising paragraph (c)(2) to read as 
follows:


Sec.  5501.101  General.

* * * * *
    (c) * * *
    (2) Significantly regulated organization means an organization for 
which the sales of products regulated by the Food and Drug 
Administration (FDA) constitute ten percent or more of annual gross 
sales in the organization's previous fiscal year; where an organization 
does not have a record of sales of FDA-regulated products, it will be 
deemed to be significantly regulated if its operations are 
predominately in fields regulated by FDA, or if its research, 
development, or other business activities are reasonably expected to 
result in the development of products that are regulated by FDA.

0
3. Amend Sec.  5501.103 as follows:
0
A. Revise the first sentence of paragraph (a) introductory text to read 
as set forth below:
0
B. Revise paragraph (a)(3) to read as set forth below;
0
C. Remove paragraph (a)(7) and redesignate paragraph (a)(6) and (a)(7);
0
D. Add new paragraph (a)(6) to read as set forth below;
0
E. Remove paragraph (a)(11) and redesignate paragraphs (a)(12) and 
(a)(13) as paragraphs (a)(11) and (a)(12);
0
F. In paragraph (b)(2), remove the word ``13'' and add in its place the 
word ``12'';
0
G. Add new paragraph (c)(1)(iii) to read as set forth below.
    The additions and revisions read as follows:


Sec.  5501.102  Designation of HHS components as separate agencies.

    (a) Separate agency components of HHS. Pursuant to 5 CFR 
2635.203(a), each of the twelve components of HHS listed below is 
designated as an agency separate from each of the other eleven listed 
components and, for employees of that component, as an agency distinct 
from the remainder of HHS. * * *
* * * * *
    (3) Agency for Healthcare Research and Quality;
* * * * *
    (6) Centers for Medicare and Medicaid Services;
* * * * *
    (c) * * *
    (1) * * *
    (iii) The regulations at Sec.  5501.111 governing the receipt of 
awards by employees of the National Institutes of Health; and
* * * * *

0
4. Amend Sec.  5501.103 by revising paragraph (a) to read as follows:


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

    (a) Tribal or Alaska Native gifts. In addition to the gifts which 
come within the exceptions set forth in 5 CFR 2635.204, and subject to 
all provisions of 5 CFR 2635.201 through 2635.205, an employee may 
accept unsolicited gifts of native artwork, crafts, or other items 
representative of traditional native culture from federally recognized 
Indian tribes or Alaska Native villages or regional or village 
corporations, provided that the aggregate market value of individual 
gifts received from any one tribe or village under the authority of 
this paragraph shall not exceed $200 in a calendar year.
* * * * *

0
5. Amend Sec.  5501.104 by revising the section heading, paragraphs 
(a), (b)(1), and (b)(2)(i), and designating the note following 
paragraph (b)(4) as note to paragraph (b) and revising it and adding 
new paragraph (c) to read as follows:


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

    (a) General prohibition. Except as permitted by paragraph (b) of 
this section, no employee or spouse or minor child of an employee, 
other than a special Government employee or the spouse or minor child 
of a special Government employee, of the Food and Drug Administration 
shall have a financial interest in a significantly regulated 
organization.
    (b) * * *
    (1) An employee or spouse or minor child of an employee may have a 
financial interest, such as a pension or other employee benefit, 
arising from employment with a significantly regulated organization.

    Note to paragraph (b)(1): FDA employees who file public or 
confidential financial disclosure reports pursuant to 5 CFR part 
2634, as opposed to spouses and minor children of such employees, 
are generally prohibited under Sec.  5501.106(c)(3) from engaging in 
current employment with a significantly regulated organization.

    (2) * * *
    (i) The total cost or value, measured at the time of acquisition, 
of the combined interests of the employee and the employee's spouse and 
minor children in the regulated organization is equal to or less than 
the de minimis exemption limit for matters involving parties 
established by 5 CFR 2640.202(a) or $15,000, whichever is greater (the 
phrase ``time of acquisition'' shall mean the date on which the 
employee actually acquired the financial interest--or on which the 
financial interest became imputed to the employee under 18 U.S.C. 208--
whether by purchase, gift, bequest, marriage, or otherwise, except that 
with respect to a financial interest that was acquired prior to the 
employee's entrance on duty as an employee of the Food and Drug 
Administration, the ``time of acquisition'' shall be deemed to be the 
date on which the employee entered on duty);
* * * * *

    Note to paragraph (b): With respect to any excepted financial 
interest, employees are reminded of their obligations under 5 CFR 
part 2635, and specifically their obligation under subpart D of part 
5501 to disqualify themselves from participating in any particular 
matter in which they, their spouses or minor children have a 
financial interest arising from publicly traded securities that 
exceeds the de minimis thresholds specified in the regulatory 
exemption at 5 CFR 2640.202 or from non-publicly traded securities 
that are not covered by the regulatory exemption. Furthermore, the 
agency may prohibit or restrict an individual employee from 
acquiring or holding any financial interest or a class of financial 
interests based on the agency's determination that the interest 
creates a substantial conflict with the employee's duties, within 
the meaning of 5 CFR 2635.403.


    (c) Reporting and divestiture. For purposes of determining the 
divestiture period specified in 5 CFR 2635.403(d), as applied to 
financial interests prohibited under paragraph (a) of this section, the 
``date divestiture is first directed'' means the date on which the new 
entrant public or confidential financial disclosure report required by 
part 2634 of this title or any report required by Sec.  5502.106(c) of 
this chapter is due.

0
6. Amend Sec.  5501.106 as follows:
0
A. Revise paragraph (c)(3) heading and introductory text, paragraphs 
(c)(4)(i) introductory text and (d)(1) introductory text, and 
paragraphs (d)(2) heading,

[[Page 5559]]

(d)(2)(i), (d)(2)(iii), (d)(3), and (d)(4) to read as set forth below:
0
B. In the first sentence of the note following paragraph (d)(4), remove 
the duplicate second occurence of the words ``granting of'';
0
C. Redesignate paragraph (d)(5) as paragraph (d)(6) and add new 
paragraph (d)(5) to read as set forth below: and
0
D. Add new paragraph (e) to read as set forth below:
    The revisions and additions read as follows:


Sec.  5501.106  Outside employment and other outside activities.

* * * * *
    (c) * * *
    (3) Prohibited outside activities applicable to employees of the 
Food and Drug Administration. An employee of the Food and Drug 
Administration who is required to file a public or confidential 
financial disclosure report pursuant to 5 CFR part 2634 shall not: * * 
*
    (4) * * *
    (i) An employee who serves as an attorney in or under the 
supervision of the Office of the General Counsel or the Office of 
Counsel to the Inspector General shall not engage in any outside 
practice of law that might require the attorney to: * * *
* * * * *
    (d) Prior approval for outside employment and other outside 
activities--(1) General approval requirement. Except to the extent that 
an employment or other activity has been exempted under paragraph 
(d)(6) of this section, an employee shall obtain written approval prior 
to engaging, with or without compensation, in the following outside 
employment or activities: * * *
    (2) Additional approval requirement for employees of the Food and 
Drug Administration and the National Institutes of Health.
    (i) In addition to the general approval requirements set forth in 
paragraph (d)(1) of this section, an employee of the Food and Drug 
Administration or the National Institutes of Health shall obtain 
written approval prior to engaging in any outside employment, as 
defined in 5 CFR 2635.603(a), whether or not for compensation, or any 
self-employed business activity.
* * * * *
    (iii) The requirement of paragraph (d)(2)(i) of this section shall 
not apply to the extent that an employment activity has been exempted, 
pursuant to paragraph (d)(6) of this section.
    (3) Submission of requests for approval. (i) An employee seeking to 
engage in any of the activities for which advance approval is required 
shall make a written request for approval a reasonable time before 
beginning the activity. This request shall be directed to the 
employee's supervisor. The supervisor shall submit the request and a 
statement addressing the extent to which the employee's duties are 
related to the proposed outside activity to an agency designee, who 
shall make a final determination with respect to the request.
    (ii) All requests for prior approval shall include the following 
information:
    (A) The employee's name, contact information, organizational 
location, occupational title, grade, step, salary, appointment type, 
and financial disclosure filing status;
    (B) The nature of the proposed outside employment or other outside 
activity, including a full description of the specific duties or 
services to be performed;
    (C) A description of the employee's official duties that relate to 
the proposed activity;
    (D) A description of how the employee's official duties will affect 
the interests of the person for whom the proposed activity will be 
performed;
    (E) The name and address of the person or organization for whom or 
with which the work or activity will be done, including the location 
where the services will be performed;
    (F) The estimated total time that will be devoted to the activity. 
If the proposed outside activity is to be performed on a continuing 
basis, a statement of the estimated number of hours per year; for other 
employment, a statement of the anticipated beginning and ending date;
    (G) A statement as to whether the work can be performed entirely 
outside of the employee's regular duty hours and, if not, the estimated 
number of hours and type of leave that will be required;
    (H) The method or basis of any compensation to be received (e.g., 
fee, per diem, honorarium, advance, royalties, stock, stock options, 
travel and expenses, or other form of remuneration tendered in cash or 
in-kind in connection with the proposed activity) from the person or 
organization for whom or with which the work or activity will be done;
    (I) The amount of any compensation to be received from the person 
or organization for whom or with which the work or activity will be 
done;
    (J) The amount and date of any compensation received, or due for 
services performed, within the six-year period immediately preceding 
the submission of the request for approval from the person or 
organization for whom or with which the work or activity will be done 
(including any amount received or due from an agent, affiliate, parent, 
subsidiary, or predecessor of the proposed payor);
    (K) A statement as to whether the compensation is derived from an 
HHS grant, contract, cooperative agreement, or other source of HHS 
funding or attributed to services related to an activity funded by HHS, 
regardless of the specific source of the compensation;
    (L) For activities involving the provision of consultative or 
professional services, a statement indicating whether the client, 
employer, or other person on whose behalf the services are performed is 
receiving, or intends to seek, an HHS grant, contract, cooperative 
agreement, or other funding relationship;
    (M) For activities involving teaching, speaking, or writing, a 
syllabus, outline, summary, synopsis, draft or similar description of 
the content and subject matter involved in the course, speech, or 
written product (including, if available, a copy of the text of any 
speech) and the proposed text of any disclaimer required by 5 CFR 
2635.807(b)(2) or by the instructions or manual issuances authorized 
under paragraph (d)(6) of this section; and
    (N) Such other relevant information that the designated agency 
ethics official or, with the concurrence of the designated agency 
ethics official, each of the separate agency components of HHS listed 
in Sec.  5501.102(a) determines is necessary or appropriate in order to 
evaluate whether a proposed activity is likely to involve conduct 
prohibited by statute or Federal regulations, including 5 CFR part 2635 
and this part.
    (4) Standard for approval. Approval shall be granted only upon a 
determination that the outside employment or other outside activity is 
not expected to involve conduct prohibited by statute or Federal 
regulation, including 5 CFR part 2635 and this part. * * *
* * * * *
    (5) Duration of approval. Approval shall be effective for a period 
not to exceed one year from the date of approval. Upon a significant 
change in the nature of the outside activity or in the employee's 
official position or duties, the employee shall submit a revised 
request for approval using the procedure in paragraph (d)(3) of this 
section. If the outside activity is anticipated to exceed one year from 
the date of the most recent approval, the employee shall renew the 
request for approval no later than thirty days prior to the expiration 
of the period authorized.

[[Page 5560]]

    (e) Waivers. The designated agency ethics official may grant a 
written waiver from any prohibited outside activity provision in this 
section or in Sec.  5501.109 based on a determination that the waiver 
is not inconsistent with part 2635 of this title or otherwise 
prohibited by law and that, under the particular circumstances, 
application of the prohibition is not necessary to avoid the appearance 
of misuse of position or loss of impartiality or otherwise to ensure 
confidence in the impartiality and objectivity with which agency 
programs are administered. A waiver under this paragraph may impose 
appropriate conditions, such as requiring execution of a written 
disqualification.

0
7. Add new Sec.  5501.109 to read as follows:


Sec.  5501.109  Prohibited outside activities applicable to employees 
of the National Institutes of Health.

    (a) Applicability. This section does not apply to special 
Government employees.
    (b) Definitions. For purposes of this section:
    (1) Compensation has the meaning set forth in 5 CFR 
2635.807(a)(2)(iii).
    (2) Continuing professional education means a course, a program, a 
series of courses or programs, or other educational activity provided 
to members of a profession, as defined in 5 CFR 2636.305(b)(1), or 
academic discipline and designed principally to maintain or advance the 
skills and competence of practitioners in a field of specialized 
knowledge and to expand an appreciation and understanding of the 
professional responsibilities, fiduciary obligations, or ethical 
aspirations incumbent upon members of the group. For those members of a 
profession or academic discipline that does not subject its members to 
licensure or continuing education requirements, the term continuing 
professional education includes those educational activities that 
exemplify a purpose and content similar to those offered to or required 
of members of a licensed profession.
    (3) Educational activity provider means a supported research 
institution, a health care provider or insurer, or a related trade, 
professional, or similar association that offers accredited continuing 
professional education (or, in the case of a profession or academic 
discipline whose members are not subject to licensure and which does 
not have program accreditation requirements, an education program 
determined by the designated agency ethics official or his designee or, 
in consultation with the designated agency ethics official or his 
designee, the NIH Director or the NIH Director's designee to be 
substantially equivalent to an accredited continuing professional 
education program), but does not include a substantially affected 
organization.
    (4) Employment has the meaning specified in 5 CFR 2635.603(a).
    (5) Health care provider or insurer means a hospital, clinic, 
skilled nursing facility, rehabilitation facility, durable medical 
equipment supplier, home health agency, hospice program, health 
maintenance organization, managed care organization, or other provider 
of health care items and services as defined in sections 1877(h)(6) or 
1903(w)(7) of the Social Security Act (42 U.S.C. 1395(h)(6) or 
1396(w)(7)) and any entity organized and licensed as a risk-bearing 
entity eligible to offer health insurance or health benefits coverage.
    (6) Related trade, professional, or similar association means a 
trade, professional, consumer, advocacy, or other organization, 
association, society, or similar group that is significantly involved 
in advancing the interests of persons or entities engaged in activities 
related to or affected by the health, scientific, or health care 
research conducted or funded by the NIH.
    (7) Scientific peer review is the evaluation of scientific research 
findings for competence, significance, and originality by qualified 
experts who research and submit work for publication in the same field 
and which provides systematized accountability for adherence to ethical 
guidelines commonly accepted within the relevant research community for 
disseminating scientific information.
    (8) Substantially affected organization means:
    (i) A biotechnology or pharmaceutical company; a medical device 
manufacturer; or a corporation, partnership, or other enterprise or 
entity significantly involved, directly or through subsidiaries, in the 
research, development, or manufacture of biotechnological, 
biostatistical, pharmaceutical, or medical devices, equipment, 
preparations, treatments, or products;
    (ii) Any organization a majority of whose members are described in 
paragraph (b)(8)(i) of this section; and
    (iii) Any other organization determined by the designated agency 
ethics official or, in consultation with the designated agency ethics 
official, by the NIH Director or the NIH Director's designee that is 
substantially affected by the programs, policies, or operations of the 
NIH.
    (9) Supported research institution means any educational 
institution or non-profit independent research institute that:
    (i) Is, or within the last year has been, an applicant for or 
recipient of an NIH grant, cooperative agreement, or research and 
development contract;
    (ii) Is, or within the last year has been, a proposer of or party 
to a cooperative research and development agreement (CRADA) with the 
NIH; or
    (iii) Any organization a majority of whose members are described in 
paragraphs (b)(9)(i) or (ii) of this section.
    (10) Unrestricted educational grant means funds received by or 
available to an educational activity provider from another source that 
are granted without stipulated conditions for their use other than the 
limitation that the funds shall be used to advance an educational 
program of the grant recipient. For purposes of this section, an 
educational grant shall not be considered unrestricted if the funding 
source for a continuing professional education program directly or 
indirectly:
    (i) Selects or recommends the moderators, speakers, or presenters 
at the sponsored event;
    (ii) Independently provides additional funding to the moderators, 
speakers, or presenters in connection with the educational activity;
    (iii) Determines or recommends the audience composition;
    (iv) Specifies or recommends the topics to be addressed, or
    (v) Controls or recommends the planning, content, or implementation 
of the program in a manner inconsistent with guidelines established by 
a relevant professional association or accrediting organization that 
are designed to ensure that such activities are accurate, balanced, 
educational, free from commercial bias, nonpromotional, and independent 
of the influence of the funding source.
    (11) Unrestricted financial contribution means funds received by or 
available to a publisher, academic press, editorial board, or other 
entity affiliated with or operated by a supported research institution, 
a health care provider or insurer, or a related trade, professional, or 
similar association from another source that are provided without 
stipulated conditions for their use other than the limitation that the 
funds shall be used to advance peer-reviewed writing or editing by the 
funds recipient. For purposes of this section, a financial contribution 
shall not be considered unrestricted if the funding source for peer-
reviewed writing or editing directly or indirectly:

[[Page 5561]]

    (i) Selects or recommends the author, reviewer, referee, or editor;
    (ii) Independently provides additional funding to the author, 
reviewer, referee, or editor in connection with the writing or editing 
activity;
    (iii) Determines or recommends the targeted audience of the writing 
or editing activity;
    (iv) Specifies or recommends the topics to be addressed, or
    (v) Controls or recommends the planning, content, or distribution 
of the written or edited product in a manner inconsistent with ethical 
guidelines commonly accepted within the relevant research community for 
disseminating scientific information which are designed to ensure that 
such writing or editing is accurate, unbiased, nonpromotional, 
transparent with respect to disclosure of potential conflicts, and 
independent of the influence of the funding source.
    (c) Prohibitions--(1) Prohibited outside activities with 
substantially affected organizations, supported research institutions, 
health care providers or insurers, and related trade, professional, or 
similar associations. Except as permitted by paragraph (c)(3) of this 
section, an employee of the NIH shall not:
    (i) Engage in employment with a substantially affected 
organization, a supported research institution, a health care provider 
or insurer, or a related trade, professional, or similar association;
    (ii) Teach, speak, write, or edit for compensation for any 
substantially affected organization, supported research institution, 
health care provider or insurer, or related trade, professional, or 
similar association; or
    (iii) Engage in any self-employed business activity that involves 
the sale or promotion of products or services of a substantially 
affected organization or a health care provider or insurer, except for 
the purpose of commercializing invention rights obtained by the 
employee pursuant to Executive Order 10096, 15 U.S.C. 3710d, or 
implementing regulations.
    (2) General exception. Nothing in paragraph (c)(1) of this section 
prevents an employee from engaging in employment with, or teaching, 
speaking, writing, or editing for, a political, religious, social, 
fraternal, or recreational organization.
    (3) Specific exceptions. Notwithstanding the prohibitions in 
paragraph (c)(1) of this section:
    (i) Teaching. An employee may engage in and accept compensation for 
teaching a course requiring multiple presentations as permitted under 5 
CFR 2635.807(a)(3).
    (ii) Clinical, medical, or health-related professional practice. An 
employee may engage in and accept compensation for the outside practice 
of medicine, dentistry, pharmacy, nursing, or similar health-related 
professional practice that involves the personal provision of care, 
treatment, or other health-related professional services to or in 
connection with individual patients, provided that:
    (A) The provision of health-related professional services to such 
individuals is not part of any ongoing research project conducted or 
funded by the NIH;
    (B) The employee does not establish a private practice relationship 
with a current or recently discharged NIH patient or subject of an NIH-
conducted or NIH-funded clinical trial or protocol;
    (C) The employee does not personally refer private practice 
patients to the NIH; and
    (D) The professional practice does not involve substantial 
unrelated non-professional duties, such as personnel management, 
contracting and purchasing responsibilities (other than ``out-of-
stock'' requisitioning), and does not involve employment by a medical 
product manufacturer in the conduct of biomedical research.
    (iii) Clerical or similar services. An employee may engage in and 
accept compensation for employment that is limited to clerical or 
similar services described in Sec.  5501.106(c)(3)(ii)(B).
    (iv) Continuing professional education. An employee may engage in 
and accept compensation for a teaching, speaking, writing, or editing 
activity that is unrelated to the employee's official duties within the 
meaning of 5 CFR 2635.807 if the activity is performed as part of a 
continuing professional education program conducted by an educational 
activity provider. If a substantially affected organization provides 
financial support for a continuing professional education program 
conducted by an educational activity provider, this exception is 
inapplicable unless the substantially affected organization is involved 
only as the funding source for an unrestricted educational grant.
    (v) Authorship of writings subjected to scientific peer review or a 
substantially equivalent editorial review process. An employee may 
engage in and accept compensation for a writing or editing activity 
that is unrelated to the employee's official duties within the meaning 
of 5 CFR 2635.807 if the resulting article, chapter, essay, report, 
text, or other writing is submitted to a publisher, academic press, 
editorial board, or other entity affiliated with or operated by a 
supported research institution, a health care provider or insurer, or a 
related trade, professional, or similar association for publication in 
a scientific journal, textbook, or similar publication that subjects 
manuscripts to scientific peer review or a substantially equivalent 
editorial review process. If a substantially affected organization 
funds the publishing activities of a supported research institution, a 
health care provider or insurer, or a related trade, professional, or 
similar association, this exception is inapplicable unless the 
substantially affected organization is involved only as an unrestricted 
financial contributor and exercises no editorial control.
    (4) Transitional grace period. Provided that the activity is not 
otherwise prohibited by statute or Federal regulation, including 5 CFR 
part 2635 and this part, and the employee has obtained prior written 
approval for the outside activity in accordance with the procedures in 
Sec.  5501.106(d), an employee may continue to engage in outside 
activities that would otherwise be prohibited by paragraph (c)(1) of 
this section for a period not to exceed 30 days from the effective date 
of this rule. An employee may request additional time up to a maximum 
of 90 days from the effective date of this rule if:
    (i) The outside activity had been reviewed by the NIH Ethics 
Advisory Committee (NEAC) and subsequently approved by the NIH deputy 
ethics counselor (DEC) (or, for those activities not within the 
jurisdiction of the NEAC, if the outside activity had been reviewed by 
the employee's supervisor and subsequently approved by the DEC for the 
employee's institute or center) during the period between January 1, 
2004, and February 3, 2005, the effective date of this rule;
    (ii) The employee submits a written request within 30 days of the 
effective date of this rule seeking authorization to continue the 
outside activity for such additional time as the employee requests (not 
to exceed the maximum 90-day grace period authorized by this section);
    (iii) The employee demonstrates that additional time is necessary 
to allow the employee to conclude responsibly his outstanding 
obligations;
    (iv) The NEAC (or, for those activities not within the jurisdiction 
of the NEAC, the employee's supervisor) finds that good cause exists 
for permitting an extended grace period beyond the initial 30 days 
authorized by this section and recommends to the NIH DEC (or the DEC 
for the employee's institute or center) that an extension be granted; 
and

[[Page 5562]]

    (v) The NIH DEC, after consultation with the designated agency 
ethics official or his designee (or, for those activities not within 
the jurisdiction of the NEAC, the DEC for the employee's institute or 
center, after consultation with the NIH DEC or his designee), 
determines the length of the extension and grants the employee 
additional time to comply with the outside activity prohibitions in 
paragraph (c)(1) of this section.
    (5) An employee who meets the criteria of paragraphs (c)(4)(i) and 
(ii) of this section may continue to engage in the outside activity 
pending the final resolution of the request, but in no event shall such 
activity continue beyond the 90-day grace period. If the extension 
request is denied, the employee shall cease the activity no later than 
five days after the employee receives notice of the denial.

0
8. Add new Sec.  5501.110 to read as follows:


Sec.  5501.110  Prohibited financial interests applicable to employees 
of the National Institutes of Health.

    (a) Applicability. This section does not apply to special 
Government employees or the spouse or minor children of a special 
Government employee.
    (b) Definitions. For purposes of this section:
    (1) Confidential filer means an employee of the National Institutes 
of Health who meets the criteria in 5 CFR 2634.904 and who has not been 
excluded from the requirement of filing a confidential financial 
disclosure report under the procedures in 5 CFR 2634.905.
    (2) Public filer means an employee of the National Institutes of 
Health who meets the criteria in 5 CFR 2634.202 and who has not been 
excluded from the requirement of filing a public financial disclosure 
report under the procedures in 5 CFR 2634.203.
    (3) Substantially affected organization has the meaning set forth 
in Sec.  5501.109(b)(8).
    (4) Time of acquisition means the date on which the employee 
actually acquired the financial interest or on which the financial 
interest became imputed to the employee under 18 U.S.C. 208, whether by 
purchase, gift, bequest, marriage, or otherwise, except that with 
respect to a financial interest that was acquired prior to the 
employee's entrance on duty as an employee of the National Institutes 
of Health, the ``time of acquisition'' shall be deemed to be the date 
on which the employee entered on duty. For assets held as of the 
effective date of this section by employees on duty at the National 
Institutes of Health at such time, the ``time of acquisition'' will be 
deemed to be the effective date of this section.
    (c) Prohibition applicable to public and confidential filers. 
Except as permitted by paragraph (e) of this section, an employee of 
the National Institutes of Health who is required to file a public or 
confidential financial disclosure report pursuant to 5 CFR part 2634 
and the spouse or minor child of such public or confidential filer 
shall not have a financial interest in a substantially affected 
organization.
    (d) Prohibition applicable to non-filers and excluded positions. 
Except as permitted by paragraph (e) of this section, an employee who 
is not required to file a public or confidential financial disclosure 
report pursuant to part 2634 of this title, or who is employed in a 
confidential filing position excluded from the prohibited holdings 
requirement pursuant to paragraph (f) of this section, or the spouse or 
minor child of such employee, shall not have a financial interest in a 
substantially affected organization unless:
    (i) The total cost or value, measured at the time of acquisition, 
of the combined interests of the employee and the employee's spouse and 
minor children in the affected organization is equal to or less than 
the de minimis exemption limit for matters involving parties 
established by 5 CFR 2640.202(a) or $15,000, whichever is greater;
    (ii) The holding, if it represents an equity interest, constitutes 
less than 1 percent of the total outstanding equity of the 
organization; and
    (iii) The total holdings in substantially affected organizations 
account for less than 50 percent of the total value of the combined 
investment portfolios of the employee and the employee's spouse and 
minor children.
    (e) Exceptions for certain financial interests. Notwithstanding the 
prohibitions in paragraphs (c) and (d) of this section:
    (1) An employee or spouse or minor child of an employee may have a 
financial interest, such as a pension or other employee benefit, 
arising from employment with a substantially affected organization.


    Note to paragraph (e)(1): NIH employees, as opposed to spouses 
and minor children of employees, are generally prohibited under 
Sec.  5501.109 from engaging in current employment with a 
substantially affected organization.


    (2) An employee or spouse or minor child of an employee may have an 
interest in a substantially affected organization that constitutes any 
interest in a publicly traded or publicly available investment fund 
(e.g., a mutual fund), or a widely held pension or similar fund, which, 
in the literature it distributes to prospective and current investors 
or participants, does not indicate the objective or practice of 
concentrating its investments in substantially affected organizations, 
if the employee neither exercises control nor has the ability to 
exercise control over the financial interests held in the fund.
    (3) In cases involving exceptional circumstances, the NIH Director 
or the NIH Director's designee, with the approval of the designated 
agency ethics official or his designee, may grant a written exception 
to permit an employee, or the spouse or minor child of an employee, to 
hold a financial interest in a substantially affected organization 
based upon a determination that the application of the prohibitions in 
paragraphs (c) or (d) of this section is not necessary to ensure public 
confidence in the impartiality or objectivity with which HHS programs 
are administered or to avoid a violation of part 2635 of this title.
    (4) An employee may have a financial interest in connection with 
the development and commercialization of invention rights obtained by 
the employee pursuant to Executive Order 10096, 15 U.S.C. 3710d, or 
implementing regulations.


    Note to paragraph (e): With respect to any excepted financial 
interest, employees are reminded of their obligations under 5 CFR 
part 2635, and specifically their obligation under subpart D to 
disqualify themselves from participating in any particular matter in 
which they, their spouses or minor children have a financial 
interest arising from publicly traded securities that exceeds the de 
minimis thresholds specified in the regulatory exemption at 5 CFR 
2640.202 or from non-publicly traded securities that are not covered 
by the regulatory exemption. Furthermore, the agency may prohibit or 
restrict an individual employee from acquiring or holding any 
financial interest or a class of financial interests based on the 
agency's determination that the interest creates a substantial 
conflict with the employee's duties, within the meaning of 5 CFR 
2635.403.


    (f) Exclusion of certain confidential filing positions from 
prohibited holdings requirement. Any individual or class of individuals 
described in paragraph (b)(1) of this section may be excluded from the 
prohibited holdings requirement of paragraph (c) of this section when 
the designated agency ethics official, in consultation with the

[[Page 5563]]

NIH Director or the NIH Director's designee, determines that:
    (1) The duties of the position make remote the possibility that a 
financial interest in a substantially affected organization would 
constitute a disqualifying financial interest under 18 U.S.C. 208;
    (2) The application of the prohibition in paragraph (c) of this 
section is not necessary to ensure public confidence in the 
impartiality or objectivity with which HHS programs are administered or 
to avoid a violation of part 2635 of this title; and
    (3) The individual or class of individuals does not occupy any 
position described below:
    (i) Any position in the Office of the Director that exercises 
broad, agency-wide influence or authority over NIH policies, programs, 
or operations;
    (ii) Any position in the Office of the Director or in an NIH 
institute or center (IC) that is specifically responsible for 
negotiating agreements between NIH and any substantially affected 
organization;
    (iii) Any position involved in extramural funding decisions for 
biomedical or behavioral research grants, contracts, or cooperative 
agreements;
    (iv) Any position the duties and responsibilities of which permit 
the employee to exert broad influence over the direction of intramural 
science; or
    (v) Any position in which the employee is engaged in research that 
involves a product or service of a substantially affected organization 
or that is likely to have a direct and predictable effect on the 
financial interests of a substantially affected organization.
    (g) Reporting and divestiture. For purposes of determining the 
divestiture period specified in 5 CFR 2635.403(d), as applied to 
financial interests prohibited under paragraphs (c) and (d) of this 
section, the ``date divestiture is first directed'' means the date on 
which the new entrant public or confidential financial disclosure 
report required by part 2634 of this title or any report required by 
Sec.  5502.106(c) of this chapter is due.

0
9. Add new Sec.  5501.111 to read as follows:


Sec.  5501.111  Awards tendered to employees of the National Institutes 
of Health.

    (a) Applicability. This section does not apply to special 
Government employees.
    (b) Additional limitations on awards to employees of the National 
Institutes of Health. The following limitations shall apply to the 
acceptance by an employee of an award pursuant to 5 CFR 2635.204(d):
    (1) Limitations applicable to senior employees.--(i) A senior 
employee shall not accept a gift with an aggregate market value of more 
than $200, or that is cash or an investment interest, that is an award 
or incident to an award given because of the employee's official 
position or from a prohibited source.
    (ii) For purposes of this section, senior employee means the 
Director and the Deputy Director of the National Institutes of Health; 
members of the senior staff within the Office of the Director who 
report directly to the NIH Director; the Director, the Deputy Director, 
Scientific Director, and Clinical Director of each Institute and Center 
within NIH; Extramural Program Officials who report directly to an 
Institute or Center Director; and any employee of equivalent levels of 
responsibility who is designated as a senior employee by the designated 
agency ethics official or the NIH Director, in consultation with the 
designated agency ethics official.
    (2) Limitations applicable to employees with official 
responsibility for matters affecting an award donor. An employee, other 
than a senior employee, shall not accept a gift with an aggregate 
market value of more than $200, or that is cash or an investment 
interest, that is an award or incident to an award from a person, 
organization, or other donor that:
    (i) Is seeking official action from the employee, any subordinate 
of the employee, or any agency component or subcomponent under the 
employee's official responsibility;
    (ii) Does business or seeks to do business with any agency 
component or subcomponent under the employee's official responsibility;
    (iii) Conducts activities substantially affected by the programs, 
policies, or operations of any agency component or subcomponent under 
the employee's official responsibility; or
    (iv) Is an organization a majority of whose members are described 
in paragraphs (b)(2)(i) through (iii) of this section.
    (3) Prior approval of awards.--(i) No employee shall accept an 
award under 5 CFR 2635.204(d) or this section unless the receipt 
thereof has been approved in writing in advance in accordance with 
procedures specified by the designated agency ethics official, or with 
the concurrence of the designated agency ethics official, the NIH 
Director or the NIH Director's designee.
    (ii) Approval shall be granted only upon a determination that 
acceptance of the award is not prohibited by statute or Federal 
regulation, including 5 CFR part 2635 and this part.


    Note to paragraph (b): In some circumstances cash and other 
things of value provided in connection with the provision of 
personal services, including speaking or writing, may be 
compensation, not a gift. Other ethics rules governing outside 
activities may restrict receipt of such compensation. See, for 
example, 5 CFR 2635.807.


    (c) Exception. Notwithstanding the prohibition in paragraph (b) of 
this section, the NIH Director (or the Secretary, with respect to 
awards tendered to the NIH Director), with the approval of the 
designated agency ethics official, may grant a written exception to 
permit an employee to accept an award otherwise prohibited by this 
section under the following conditions:
    (1) There is a determination by the NIH Director (or the Secretary, 
with respect to awards tendered to the NIH Director) that acceptance of 
the gift will further an agency interest because it confers an 
exceptionally high honor in the fields of medicine or scientific 
research. The following criteria will be considered in making such a 
determination:
    (i) The identity of the awarding organization;
    (ii) The longevity of the awards program;
    (iii) The source of award funds;
    (iv) The size of the monetary component of the award recognition;
    (v) The identity and credentials of past award recipients;
    (vi) The degree of publicity attendant to receipt of the award; and
    (vii) The impact of the substantive contribution being recognized;
    (2) Absent the prohibition in paragraph (b) of this section, the 
gift would be permitted under part 2635 of this title; and
    (3) The designated agency ethics official shall have determined 
that the application of the prohibition in paragraph (b) of this 
section is not necessary to ensure public confidence in the 
impartiality or objectivity with which NIH programs are administered or 
to avoid a violation of part 2635 of this title.
    (d) Disposition of improperly accepted awards--(1) Failure to 
obtain prior approval. If an employee accepts an award for which 
approval is required under paragraph (b)(3) of this section without 
obtaining such approval, the employee may be required, in addition to 
any penalty provided by law and applicable regulations, to forfeit the 
award by returning it to the donor.
    (2) Receipt of prohibited award. If an employee accepts an award 
prohibited

[[Page 5564]]

by paragraph (b) of this section, the employee shall be required, in 
addition to any penalty provided by law and applicable regulations, to:
    (i) Reject the award and instruct the donor to strike the honoree's 
name from any list of award recipients;
    (ii) Remove the recognition from the employee's 
r[eacute]sum[eacute] or curriculum vitae;
    (iii) Return any tangible indicia of the recognition to the donor; 
and
    (iv) Forfeit the award by returning it to the donor.

0
10. Add new Sec.  5501.112 to read as follows:


Sec.  5501.112  One-year disqualification of employees of the National 
Institutes of Health from certain matters involving an award donor.

    An employee, other than a special Government employee, of the 
National Institutes of Health who has, within the last year, accepted 
an award permitted under 5 CFR 2635.204(d) or Sec.  5501.111 shall not 
participate in any particular matter involving specific parties in 
which the donor is or represents a party unless authorized to do so 
under 5 CFR 2635.502(d).

PART 5502--SUPPLEMENTAL FINANCIAL DISCLOSURE REQUIREMENTS FOR 
EMPLOYEES OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES

0
11. Add new part 5502 to read as follows:

PART 5502--SUPPLEMENTAL FINANCIAL DISCLOSURE REQUIREMENTS FOR 
EMPLOYEES OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES

Sec.
5502.101 General.
5502.102 Annual supplemental report of outside employment or 
activities.
5502.103 Content of annual supplemental reports.
5502.104 Confidentiality of reports.
5502.105 Agency procedures.
5502.106 Supplemental disclosure of prohibited financial interests 
applicable to employees of the Food and Drug Administration and the 
National Institutes of Health.

    Authority: 5 U.S.C. 301, 7301; 5 U.S.C. App. (Ethics in 
Government Act of 1978); E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., 
p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 Comp., 
p. 306; 5 CFR 2634.103.


Sec.  5502.101  General.

    The regulations in this part apply to employees of the Department 
of Health and Human Services and supplement the Executive Branch 
Financial Disclosure Regulations in 5 CFR part 2634. Any regulation in 
this part made applicable only to the employees of an HHS component 
designated as a separate agency under Sec.  5501.102(a) of this chapter 
shall apply to the employees of that component as defined in Sec.  
5501.102(b)(1) of this chapter.


Sec.  5502.102  Annual supplemental report of outside employment or 
activities.

    Any employee, other than a special Government employee, for whom an 
outside employment or activity has been approved, or who has 
participated in any outside employment or activity for which prior 
approval is required, under part 5501 of this chapter shall file on or 
before February 28 of each year a report concerning all such activities 
that were approved or undertaken in the previous calendar year. The 
annual report shall be filed with the employee's supervisor who shall 
review the form, in consultation with an agency ethics official, and 
determine whether the employee has complied with applicable laws and 
regulations and whether approval of any ongoing outside activity should 
be cancelled because the activity does not meet the standard in Sec.  
5501.106(d)(4) of this chapter.


Sec.  5502.103  Content of annual supplemental reports.

    The annual supplemental report of outside employment or activities 
required by Sec.  5502.102 shall include the following information:
    (a) The employee's name, contact information, organizational 
location, occupational title, grade, step, salary, appointment type, 
and financial disclosure filing status;
    (b) A list of all outside activities for which prior approval is 
required under part 5501 of this chapter that were approved pursuant to 
5 CFR 5501.106(d) or undertaken within the reporting period. The report 
must identify the person or organization for whom or with which the 
employee was to perform the activity and the approval date;
    (c) A statement as to whether the anticipated work described in a 
previously approved outside activity was actually performed for the 
person or organization named in the request for approval;
    (d) For each outside activity actually performed, the beginning 
date of the relationship with the outside entity, the date(s) personal 
services were provided, the total number of hours spent and leave used 
on the activity within the reporting period, and the ending date;
    (e) For each outside activity that remains ongoing at the time of 
filing the report, a statement as to how long the activity is 
anticipated to continue, the date on which prior approval expires, and 
whether a request for renewal of approval is anticipated;
    (f) For each outside activity actually performed, the type and 
amount of any income and/or reimbursements actually received during the 
reporting period and the date paid;
    (g) For each outside activity actually performed, the type and 
amount of any income and/or reimbursements earned during or 
attributable to the reporting period that were not in fact received 
during the reporting period and remain due;
    (h) A statement as to whether any change has occurred or is 
anticipated with respect to information supplied in the original 
outside activity approval request;
    (i) A description of any change in the nature, scope, or subject 
matter of any approved activity; and
    (j) A description of any change in jobs or in the duties and 
responsibilities of the employee's position that occurred after the 
outside activity was approved.


Sec.  5502.104  Confidentiality of reports.

    Each report filed under this part is confidential and shall not be 
disclosed to the public, except as provided under Sec.  2634.604(b) of 
this title.


Sec.  5502.105  Agency procedures.

    The designated agency ethics official or, with the concurrence of 
the designated agency ethics official, each of the separate agency 
components of HHS listed in Sec.  5501.102(a) of this chapter may 
prescribe procedures for the submission and review of each report filed 
under this part. These procedures may provide for filing extensions, 
for good cause shown, totaling not more than 90 days.


Sec.  5502.106  Supplemental disclosure of prohibited financial 
interests applicable to employees of the Food and Drug Administration 
and the National Institutes of Health.

    (a) Applicability. This section does not apply to special 
Government employees.
    (b) Definitions. For purposes of this section:
    (1) Confidential filer means an employee who meets the criteria in 
5 CFR 2634.904 and who has not been excluded from the requirement of 
filing a confidential financial disclosure report under the procedures 
in 5 CFR 2634.905.
    (2) Prohibited financial interest means a financial interest 
prohibited by Sec.  5501.104(a) or Sec. Sec.  5501.110(c) and (d) of 
this chapter for FDA or NIH employees respectively, including those 
financial interests that are excepted

[[Page 5565]]

under Sec. Sec.  5501.104(b) or 5501.110(e) or permitted under 
paragraphs (d)(i) through (d)(iii) of Sec.  5501.110 of this chapter.
    (3) Public filer means an employee who meets the criteria in 5 CFR 
2634.202 and who has not been excluded from the requirement of filing a 
public financial disclosure report under the procedures in 5 CFR 
2634.203.
    (4) Remainder of HHS has the meaning set forth in Sec.  
5501.102(b)(2) of this chapter.
    (5) Separate agency component has the meaning set forth in Sec.  
5501.102(a) of this chapter.
    (c) Report of prohibited financial interests.--(1) New entrant 
employees. A new entrant employee, other than a public filer or a 
confidential filer, shall report in writing within 30 days after 
entering on duty with the FDA or the NIH any prohibited financial 
interest held upon commencement of employment with the agency.
    (2) Reassigned employees. An employee of a separate agency 
component, other than the FDA or the NIH, or of the remainder of HHS 
who is reassigned to a position at the FDA or the NIH shall report in 
writing within 30 days of entering on duty with the FDA or the NIH any 
prohibited financial interest held on the effective date of the 
reassignment to the agency.
    (3) Incumbent employees. An incumbent employee of the FDA or the 
NIH who acquires any prohibited financial interest shall report such 
interest in writing within 30 days after acquiring the financial 
interest. An employee on duty at the NIH who is subject to Sec.  
5501.110(c) of this chapter as of February 3, 2005, the effective date 
of this rule, shall report in writing within 60 days after the 
effective date any prohibited financial interest held on the effective 
date.

[FR Doc. 05-2029 Filed 2-1-05; 2:00 pm]
BILLING CODE 4150-03-P