[Federal Register Volume 70, Number 168 (Wednesday, August 31, 2005)]
[Rules and Regulations]
[Pages 51559-51574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-17352]



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  Federal Register / Vol. 70, No. 168 / Wednesday, August 31, 2005 / 
Rules and Regulations  

[[Page 51559]]



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: Final rule.

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

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 final rule adopts, with certain revisions, the changes made to 5 
CFR part 5501 in the interim final rule that was published on February 
3, 2005, at 70 FR 5543. After considering comments to that rulemaking, 
this final rule: Clarifies the definition of an ``employee of a 
component;'' Amends the outside activity prior approval requirements 
applicable to employees of the Food and Drug Administration (FDA) and 
the National Institutes of Health (NIH); Revises prior approval 
information collection requirements and the waiver provision applicable 
to the outside activities prohibitions; Removes professional 
associations and other science and health-related organizations from 
the list of entities with which NIH employees are prohibited from 
engaging in outside activities; Adds exceptions to the NIH outside 
activities prohibition for delivering a class lecture as part of a 
regularly scheduled university course, serving on data and safety 
monitoring boards and grant and scientific review committees, and 
presenting in Grand Rounds; Limits the prohibition on holding financial 
interests in substantially affected organizations to senior NIH 
employees, their spouses, and minor children only, permits investments 
in such organizations that do not exceed $15,000, and allows holdings 
capped at $50,000 in sector mutual funds that concentrate their 
investments in the securities of substantially affected organizations; 
and Revises the outside award limitations for senior NIH employees by 
applying an official responsibility test for matters potentially 
involving an award donor. In addition, the financial disclosure 
reporting requirements specified in new part 5502 that were added by 
the interim final rule of February 3, 2005, at 70 FR 5543, and amended 
by an interim final rule that was published on June 28, 2005, at 70 FR 
37009, are adopted as final, subject to certain amendments. The 
requirement to file a supplemental disclosure of financial interests in 
substantially affected organizations is refocused to apply to NIH 
employees who file a public or confidential financial disclosure report 
and other NIH employees who are designated as investigators in an NIH 
clinical research protocol approved by an institutional review board. 
The due date for the initial report is also changed.

DATES: This final rule is effective August 31, 2005.

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 codified at 5 CFR part 5501 
establishing supplemental standards of ethical conduct for its 
employees. The 1996 final rule was amended by an interim final rule 
with a request for comments that was published at 70 FR 5543 on 
February 3, 2005.
    The interim final rule focused primarily on rules applicable to 
employees of the National Institutes of Health related to outside 
activities, financial holdings, and awards. Regulatory action was taken 
to address significant concerns about employee conduct in those areas 
which had been the subject of media reports and Congressional hearings. 
The resulting provisions generated considerable comment and prompted 
press coverage of employee objections, possible adverse effects on 
hiring and retention, and public reaction across a broad spectrum of 
viewpoints. The comments have been carefully considered and will be 
addressed more specifically below.
    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. The interim final rule amended 
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. The 
latter disclosure requirement for NIH employees is being changed to 
correlate with revisions to the prohibited holdings rule.
    Although this rulemaking confirms as final, with significant 
revisions, the amendments made by the interim final rule, the 
regulation will be reviewed within one year to evaluate its continued 
adequacy and effectiveness in relation to current agency 
responsibilities. As indicated in the preamble to the interim final 
rule at 70 FR 5543, those aspects of the rule governing outside 
activities continue to be under review for the remainder of the year 
indicated in that discussion.

[[Page 51560]]

II. Summary of Comments

    Approximately 1200 of the more than 1400 comments timely submitted 
were from NIH employees, and about 70 comments were submitted by 
spouses and other family members of NIH employees. The remaining 
comments were submitted by health care professionals and scientific 
investigators at various universities and health care facilities, and a 
number of private sector entities, such as professional associations, 
other non-profit organizations, and corporations. The Department of 
Health and Human Services has considered each of the comments received. 
Those determined to be significant are discussed in further detail 
below in the context of the sections to which they pertain.
    Many commenters submitted their views on more than one provision, 
and some provided multiple observations about a single provision. About 
365 comments specifically addressed the outside activity limitations, 
and slightly more, about 385, focused on the prohibited holdings rule. 
The awards provision generated no specific reaction.
    With respect to outside activities, some commenters objected to the 
increased paperwork and administrative burden that would be generated 
by the expanded prior approval requirement. They also expressed a more 
generalized concern that the restrictions would stifle the ability of 
government scientists to interact with their private sector 
counterparts, thus depriving them of personal and professional 
development opportunities and slowing the translation of scientific 
discoveries into tangible benefits for the public.
    Regarding the prohibited holdings provision, many commenters 
questioned the relative fairness of the regulatory approach and its 
application to all NIH employees as well as their spouses and minor 
children. Some commenters who understood the need to divest holdings in 
substantially affected organizations urged a longer grace period within 
which to comply.
    A number of intramural NIH employees, collectively known as the 
Assembly of Scientists, and others recommended as an alternative to the 
interim final rule that conduct provisions be established for each of 
several groups or categories of employees. The five or other number of 
categories recommended were intended to represent large groups of 
employees with relatively similar duties and authorities. Applicable 
rules would be tailored to each category in an effort to respond to the 
issues of greatest risk for each group. While the Department did not 
wholly accept these proposals, a number of revisions are being made in 
recognition of the differences between employees as to rank, duties, 
and their level of responsibility for matters affecting public health 
and clinical research protocols involving human subjects.
    Comments, either of style or substance, that were generally 
supportive or generally critical of the interim final rule are not 
discussed in detail. The latter category of comments far exceeded the 
former, but a few commenters expressed support for the rule asserting 
that the provisions would reduce or eliminate financial motives that 
might be perceived as influencing scientific and medical research. 
Those submissions that offered no constructive comments, but simply 
inquired about the application of the interim final rule to the 
commenter's own situation, such as whether a particular company was a 
significantly affected organization or whether an aspect of the rule 
applied to the commenter, are not addressed. Those comments that 
discussed topics unrelated to government ethics, pointed to 
implementation issues that have been resolved, or were without 
substantive merit are also not discussed. Nor does this discourse 
specifically refer to comments that demonstrated a clear 
misunderstanding of the purpose or language of the interim final rule 
or of other applicable government ethics laws or regulations, except 
when such comments highlighted the need for NIH-specific standards. 
Among such comments were those suggesting that the Government must 
compensate employees for the costs of complying with regulations 
intended to prevent financial conflicts of interest, statements that 
new laws could not legally change the rules for current NIH employees, 
comments suggesting that it would not be appropriate for the Department 
to hold NIH employees to any standard that exceeds the standards 
applicable to employees of non-governmental entities, and comments 
indicating an unawareness of the exceptions to the outside activity and 
awards provisions applicable to NIH employees and to the financial 
holdings provision applicable to NIH employees and their spouses and 
minor children. Finally, comments regarding the administration of the 
ethics program at the NIH that are unrelated to substance or procedures 
in the interim final rule are not addressed.

III. Analysis of the Amendments

A. Supplemental Standards of Ethical Conduct

Section 5501.101 General
    Paragraph (c) is amended to provide that the terms used in part 
5501, unless otherwise defined, have the same meaning as those defined 
in parts 2635 and 2640. The paragraph previously referred only to part 
2635. The change reflects the use within Sec.  5501.110 of several 
terms defined in part 2640, such as holdings, pension plan, and sector 
mutual fund.
Section 5501.102 Designation of HHS Components as Separate Agencies
    The change to this section clarifies an ambiguity in Sec.  
5501.102(b)(1). The definition of ``employee of a component'' can be 
interpreted to apply the supplemental ethics rules applicable to a 
designated agency component to all employees of a division or region of 
the Office of the General Counsel if the division or region is 
principally responsible for advising or representing that component. 
This formulation does not comport with the current assignment of 
responsibilities within OGC. For example, regional offices have 
generalist, rather than component-specific responsibilities. Some 
divisions have multiple branches, and then only one branch within a 
division can be said to focus primarily on a particular component. 
Accordingly, Sec.  5501.102(b)(1) is amended to focus on the regularly 
assigned duties and responsibilities of an individual employee rather 
than that person's location within the organization.
Section 5501.106 Outside Employment and Other Outside Activities
    Section 5501.106(c)(3)(ii)(B) originally provided for an exception 
to the FDA prohibited outside activities rule to allow clerical or 
similar services (such as cashier or janitorial services) for retail 
stores, such as supermarkets, drug stores, or department stores, that 
might otherwise be significantly regulated organizations due to their 
sales of FDA-regulated products. As drafted, the exception applied only 
where clerical or similar services were performed for retail stores. An 
employee who worked on the weekends as a plumber could not respond to 
an emergency repair call to fix a leaky pipe at a bottling plant or a 
pharmaceutical manufacturing facility. Although seemingly innocuous 
business relationships can raise conflicts and impartiality concerns, 
subjecting such activities to an absolute prohibition with only a 
narrow exception tied to

[[Page 51561]]

employment at retail stores does not appear to be warranted.
    With respect to the parallel provision governing NIH employees at 
Sec.  5501.109, several commenters urged that appropriate exceptions be 
adopted to accommodate activities that pose a diminished risk for 
potential conflicts or other ethics concerns, such as performing 
plumbing or electrical work, providing protective or security services, 
and rendering other types of personal services that are unrelated to 
the substantive programmatic functions of their employing agency. The 
Department concurs in those comments and will apply the changes urged 
for NIH employees to FDA employees as well. Accordingly, this final 
rule revises the exception to the FDA prohibited outside activity rule 
at Sec.  5501.106(c)(3) to permit employment that primarily involves 
manual or unskilled labor or utilizes talents, skills, or interests in 
areas unrelated to the substantive programmatic activities of the FDA, 
such as clerical work, retail sales, service industry jobs, building 
trades, maintenance, or similar services. For example, assuming the 
activity would not otherwise violate a Federal statute or regulation or 
result in recusals that would materially impair the employee's ability 
to do his government job, an FDA employee covered by the rule would be 
permitted to work as a cashier at a retail drug store and ring up 
consumer purchases of soft drinks and prescription drugs, or as a truck 
driver who delivers such products to the retailer. However, Sec.  
5501.106(c)(3) will continue to prohibit a public or confidential filer 
at FDA from serving as a salesman for a beverage distributor or as a 
pharmaceutical company representative engaged in wholesale 
transactions.
    Section 5501.106(d)(2)(i) as amended by the interim final rule 
required FDA and NIH employees to obtain prior approval for any outside 
employment or self-employed business activity. Prior to the interim 
final rule, this requirement applied only to the FDA. A number of 
commenters objected to extending the requirement to the NIH, citing the 
increased paperwork and administrative burden. They claimed that the 
expanded prior approval requirement would discourage participation in 
outside activities and lead to a decrease in civic engagement in 
community groups, volunteer efforts, and non-profit organizations that 
allegedly pose no conflict of interest for NIH employees. Other 
commenters questioned the need to approve outside activities with no 
apparent connection to agency operations such as lawn mowing, teaching 
music, or selling real estate.
    Prior to the interim final rule, NIH employees were required only 
to obtain prior approval to engage in an outside activity that involved 
providing professional or consultative services; teaching, speaking, 
writing, or editing that related to an employee's official duties under 
the government-wide standard, 5 CFR 2635.807, or that resulted from an 
invitation from a prohibited source; or serving as an officer, 
director, or board member. The interim final rule widened the scope of 
activities subject to prior approval for several reasons. Prior 
approval at the NIH was expanded primarily as a means to implement the 
prohibition in Sec.  5501.109 on outside activities with substantially 
affected organizations (SAO), supported research institutions (SRI), 
health care providers or insurers (HCPI), or related trade, 
professional, or similar associations (RTPSA). An approval process that 
focused only on professional or consultative services, teaching, 
speaking, writing, editing, or board service would not screen for 
prohibited activities with SAOs, SRIs, HCPIs, or RTPSAs that fell 
outside those enumerated categories. Moreover, activities considered 
less problematic, such as clerical work, protective services, or 
building maintenance, even when performed for organizations other than 
SAOs, SRIs, HCPIs, or RTPSAs, potentially could violate other 
supplemental provisions. For example, an NIH employee cannot work as a 
child care provider at a local Head Start agency if the employee's 
salary is funded by an Administration for Children and Families (ACF) 
grant, or moonlight as a guard for a protective services contractor 
providing security for an FDA facility because Sec.  5501.106(c)(2) 
bars compensated employment in an HHS-funded activity. Thus, absent an 
expanded prior approval requirement, an employee might engage 
unintentionally in proscribed conduct. Prior approval also provided 
additional opportunities for a ``teaching point'' where an individual 
employee could receive guidance about conflicts under 18 U.S.C. 208, 
appearance concerns under 5 CFR 2635.502, and the use of public office 
for private gain addressed in 5 CFR 2635.702. The restrictions on 
representing outside entities before the Government under 18 U.S.C. 203 
and 205 also could be stressed.
    Despite the benefits of requiring prior approval for all outside 
activities, many commenters questioned whether requiring advance 
permission to paint houses, teach piano, or coach a sports team, for 
example, was warranted. The Department concurs that such activities 
generally are unlikely to pose conflicts or other ethics concerns. 
Consideration was given to excluding these examples and a list of 
similar activities from the prior approval requirement using the 
existing authority in Sec.  5501.106(d)(6), now codified as paragraph 
(d)(7). Upon further evaluation, the Department has decided to remove 
entirely the requirement that FDA and NIH employees must obtain prior 
approval for all outside activities.
    In its place, paragraph (d)(2) has been revised to require an FDA 
or NIH employee to obtain prior approval for any outside employment, as 
defined in 5 CFR 2635.603(a), with, or any self-employed business 
activity involving the sale or promotion of products or services of, 
any person or organization that is a prohibited source of the 
employee's agency component. The term ``prohibited source'' is defined 
in 5 CFR 2635.203(d) as any entity that seeks official action from, 
does business or seeks to do business with, or conducts activities 
regulated by the employee's agency; has interests that may be 
substantially affected by the performance or nonperformance of the 
employee's official duties; or is an organization the majority of whose 
members are such entities. The Department has designated separate 
agency components in Sec.  5501.102 that define an ``employee's 
agency'' for purposes of outside activity prior approval. The FDA and 
the NIH have been so designated.
    As a result of the revised prior approval requirement, if an 
outside activity does not involve professional or consultative 
services; teaching, speaking, writing, or editing that relates to 
official duties; or board service; an FDA or NIH employee no longer 
needs prior approval, unless the activity involves employment 
undertaken at the invitation of or performed for a prohibited source of 
the FDA or the NIH respectively.
    For FDA or NIH employees who previously were subject to a prior 
approval requirement for all outside activities, this distinction 
aligns the prior approval requirement more closely with those types of 
external entities that are most likely to pose conflicts or raise 
appearance concerns. By tailoring the prior approval requirement in 
this manner, however, not all potential violations will be detected, as 
was previously discussed. An NIH employee who seeks to moonlight as a 
guard at a Head Start grantee agency or for the contractor that 
provides protective services for FDA at the Parklawn

[[Page 51562]]

Building will not have to file an HHS 520 prior approval form because 
the grantee and contractor are prohibited sources of ACF and FDA 
respectively, rather than NIH. This omission necessitates extensive 
training regarding the existing prohibitions in Sec. Sec.  
5501.106(c)(1) and (2) which bar employees from receiving compensation 
for assisting in the preparation of documents to be submitted to HHS or 
working in an HHS-funded activity.
    Nevertheless, this change in the prior approval requirement from 
that specified in the interim final rule considerably reduces the 
paperwork and administrative burden for FDA and NIH employees and their 
respective agencies, without unduly diminishing the ability of each 
agency to ensure compliance with applicable ethics laws and 
regulations. A prior approval requirement for FDA or NIH employees that 
focused on whether the proposed employment is to be conducted with a 
prohibited source of HHS, as opposed to the employee's own component, 
would be unnecessarily broad, given the extensive reach of the 
Department's operations in many sectors of the economy. Accordingly, 
this final rule correlates prior approval with those activities and 
sources of outside employment that have a more clearly demonstrable 
nexus to the employee's work and that of the employing agency and hence 
the potential for ethics concerns.
    The prior approval exceptions for activities with political, 
religious, social, fraternal, or recreational organizations formerly 
contained in paragraphs (d)(1)(iii) and (d)(2)(ii) are now combined, 
placed in new paragraph (d)(3)(i), and made applicable to all 
categories within the general approval requirement in paragraph (d)(1), 
as well as to paragraph (d)(2). The addition of new paragraph (d)(3) 
necessitated the renumbering of the succeeding paragraphs.
    The amended paragraphs (d)(4)(ii)(D) through (d)(4)(ii)(O) specify 
information to be supplied by an employee who requests prior approval 
to engage in an outside activity. These paragraphs were edited without 
substantive change, with the exception of a new paragraph 
(d)(4)(ii)(F), which caused the subsequent subparagraphs to be 
redesignated. The new subparagraph (F) elicits travel reimbursement 
information separately from compensation because travel reimbursement 
is treated differently under various ethics rules depending upon the 
employee's status and other circumstances. Subparagraph (I) is amended 
to focus solely on compensation and non-travel related cash or in-kind 
items.
    Paragraph (e) is amended to clarify that the designated agency 
ethics official may grant a written waiver of the prohibited outside 
activity rules to either an individual or a class of similarly situated 
persons.
Section 5501.109 Prohibited Outside Activities Applicable to Employees 
of the National Institutes of Health
    Under Sec.  5501.109(c)(1) of the interim final rule, subject to 
certain exceptions, all NIH employees were 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 (SAO), a supported research 
institution (SRI), a health care provider or insurer (HCPI), or a 
related trade, professional, or similar association (RTPSA). Employees 
were also prohibited from engaging in any self-employed business 
activity that involves the sale or promotion of products or services of 
an SAO or HCPI.
    A ``substantially affected organization'' was defined 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, such as industry trade associations, and any other entity 
classified by the designated agency ethics official as a substantially 
affected organization.
    A ``supported research institution'' was defined 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 
cooperative research and development agreement (CRADA).
    A ``health care provider or insurer'' was 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 and those risk-bearing entities that offer health insurance or 
health benefits coverage.
    A ``related trade, professional, or similar association'' referred 
to 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.
    The prohibited outside activities rules applicable to all NIH 
employees were intended to focus on those types of activities and 
external entities that may pose the most significant risk of potential 
conflicts. The need for prophylactic rules barring certain types of 
outside activities derived in part from the significant administrative 
burden inherent in case-by-case determinations and the difficulties 
encountered by non-scientific staff at NIH tasked with administering 
the ethics program. In order to advise whether an outside activity was 
related to an employee's official duties, the ethics staff often had to 
differentiate scientific work performed as an official duty assignment 
from that proposed as an outside activity, a technical task for which 
they lacked the requisite expertise. See the discussion in the preamble 
to the interim final rule at 70 FR 5548.
    A number of commenters asserted that the translation of NIH 
discoveries into viable and available medical advances to improve the 
public health would be hampered by the restriction on outside 
consulting and other collaborations with industry. Given that the 
interim final rule contained no provisions limiting the ability of NIH 
employees to engage officially in efforts to advance NIH discoveries, 
or to travel in their official capacities to present and discuss 
research findings (at the expense of others where appropriate under NIH 
policy), and contained a specific exception permitting employees to 
engage in outside activities involving efforts to commercialize 
invention rights waived to them by the agency, the basis for those 
comments is unclear. No changes have been made in response to such 
comments.
    Nevertheless, the Department has revised Sec.  5501.109 to 
accommodate a significant number of comments from professional 
associations, constituent groups, university observers, employees and 
their families regarding the new restriction on employment, including 
consultation and board service, with ``related trade, professional or 
similar associations.'' Specifically, the comments expressed concern 
that restrictions imposed on the ability of NIH employees to 
participate fully as members of the greater scientific community would 
negatively affect the public health because NIH scientists would become 
isolated from their

[[Page 51563]]

counterparts in the private and academic sectors and ultimately a 
reduction in recruitment and retention at NIH would result. As noted in 
the preamble to the interim final rule at 70 FR 5549, the Department 
fully appreciates that scientific exchange between professionals is a 
cornerstone of the scientific process, and that science is a 
collaborative endeavor that necessitates interaction between experts in 
their respective fields.
    Therefore, upon further consideration, outside activities with 
RTPSAs do not appear to raise the same concerns that underlie the 
prohibition on outside activities with SAOs, SRIs, and HCPIs. Although 
activities with health-related trade associations, such as those that 
represent health care providers or insurers, may present potential 
conflicts, the trade associations most directly interested in NIH 
research activities are those that represent the pharmaceutical, 
biotechnology, and medical device industries. Such trade associations 
are already covered by the prohibition on outside activities with SAOs 
due to the composition of their membership. In addition, serving as an 
officer or board member of, or consulting for, a professional 
association, an advocacy group, or a consumer organization, although 
not devoid of potential conflicts, presents financial interests and 
covered relationship issues distinct from those presented by employment 
or consulting with SAOs, SRIs, and HCPIs, the commercial interests of 
which are more directly affected by NIH research and funding 
activities. Consequently, in order to tailor more narrowly the scope of 
the outside activity prohibition, RTPSAs are deleted. Outside 
activities with RTPSAs that involve professional or consultative 
services, teaching, speaking, writing, editing, or board service or 
that are performed for a prohibited source of the employee's agency 
nevertheless require prior approval and are subject to the substantive 
provisions governing outside activities under prior existing law.
    Section 5501.109(c)(3) of the interim final rule contained several 
exceptions designed to facilitate professional obligations and certain 
academic endeavors. These exceptions partially lifted the absolute bar 
on outside activities with the list of organizations described in Sec.  
5501.109(c)(1), but they did not affirmatively permit an activity that 
would otherwise violate Federal law or regulations, including 5 CFR 
parts 2635, 2636, and 5501. Specifically, exceptions were provided to 
allow, subject to the prior approval standard and the substantive 
provisions governing outside activities under prior existing law, 
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 
contained 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 recognized that individuals may be employed 
in less problematic roles with outside entities such as providing 
clerical assistance, janitorial services, or unskilled labor.
    The exception to the outside activity prohibition in Sec.  
5501.109(c)(3)(iii) for clerical or similar services is amended to 
correspond with the changes to the FDA counterpart to this provision at 
Sec.  5501.106(c)(3)(ii)(B).
    This final rule identifies four additional activities as exceptions 
to the outside activity prohibition in order to promote important 
educational objectives and advance public health and safety. As with 
the existing exceptions, any outside activity excepted from the 
prohibition in Sec.  5501.109(c)(1) may be prohibited nonetheless if 
the activity would otherwise violate Federal law or regulations, 
including 5 CFR parts 2635, 2636, and 5501. With this caveat 
understood, two changes refine the existing exceptions for teaching and 
continuing professional education. Two other changes permit employees 
to serve, under certain circumstances, on data and safety monitoring 
boards associated with clinical research protocols and to lend their 
expertise on grant and scientific review committees for external 
funding institutions.
    First, new Sec.  5501.109(c)(3)(i)(B) permits compensation for a 
single class lecture delivered by the employee as part of a regularly 
scheduled course taught by an individual other than the employee at an 
accredited academic institution. Unlike the exception in paragraph 
(c)(3)(i)(A) for teaching a course involving multiple presentations, a 
compensated guest lecture delivered on a single occasion within the 
context of a college course is subject to the prohibition in 5 CFR 
2635.807(a)(2)(i)(B) on accepting compensated teaching and speaking 
invitations extended primarily because of official position and the 
subject matter restrictions of 5 CFR 2635.807(a)(2)(i)(E). The latter 
provision refers to activities the subject matter of which deals in 
significant part with the employee's current or recent (within the last 
year) work assignments or any ongoing or announced policy, program, or 
operation of the agency. Similarly, the new exception for single 
lectures will not permit compensation for activity related to the 
employee's official duties within the meaning of any other provisions 
in 5 CFR 2635.807(a)(2)(i). Class lectures that would be prohibited as 
outside activities for these reasons may, in appropriate circumstances, 
be given as part of an employee's official duties with supervisory 
approval. Class lectures permissible as compensated outside activities 
would be those that result from invitations extended primarily because 
of the employee's expertise, that occur at universities lacking 
interests affected substantially by the employee's discharge of 
official duties, and that convey broad knowledge about a particular 
scientific or clinical area, and not those that focus on the employee's 
own work or other cutting-edge research conducted at the NIH.
    Second, the current continuing professional education exception 
addresses only one aspect of the instructional continuum in the medical 
profession, i.e., those seminars that are open to practicing 
physicians. Presentations geared to an audience composed of medical 
students and resident physicians-in-training, commonly known as Grand 
Rounds, are not covered, yet the educational interaction of NIH 
employees with this population is as critically important as 
participation in continuing medical education (CME) instruction, 
particularly given the potential to recruit attendees to work at the 
NIH. Accordingly, new paragraph (c)(3)(vii) incorporates a Grand Rounds 
exception with appropriate limitations to preclude participation in 
such activities if an SAO or speakers' bureau affiliated with an SAO 
sponsors the program or the employee's presentation other than through 
an unrestricted educational grant.
    As with other exceptions in paragraph (c)(3), the exception for 
compensated Grand Rounds presentations is subject to the limitations in 
5 CFR 2635.807. Accordingly, the invitation to deliver a Grand Rounds 
presentation cannot have been tendered to the employee primarily 
because of the employee's

[[Page 51564]]

official position or extended by an entity that has interests that may 
be substantially affected by the performance or nonperformance of the 
employee's official duties. The subject matter of the Grand Rounds 
presentation must not deal in significant part with the employee's 
recent (within the last year) or current assignments or any ongoing or 
announced policy, program, or operation of the NIH. The information 
conveyed may not draw substantially on ideas or official data that are 
nonpublic information.
    Third, NIH employees often have played a critical role in serving 
on data and safety monitoring boards (DSMB) for clinical trials 
conducted at universities and medical research institutes. These boards 
monitor incoming statistical and other data on patient outcomes and 
adverse events that may be associated with a drug, biologic, or an 
intervention under review in a clinical trial. The DSMB members are 
experts in relevant disciplines, such as trial design, biostatistics, 
and bioethics, who are not directly involved in conducting the study. 
Although the DSMB members generally are considered a group separate 
from the sponsor (entity that funds the trial), the organizer (entity 
that selects the members), or the investigators (lead scientific staff 
that conducts the clinical research), DSMBs follow various models with 
respect to the degree of independence from the sponsor. See Arthur S. 
Slutsky et al., Data Safety and Monitoring Boards, 350 N. Eng. J. Med. 
1143 (2004); Food and Drug Administration, Guidance for Clinical Trial 
Sponsors on the Establishment and Operation of Clinical Trial Data 
Monitoring Committees (2001), draft guidance available at http://www.fda.gov/cber/gdlns/clindatmon.pdf; National Institutes of Health, 
Further Guidance on Data and Safety Monitoring for Phase I and Phase II 
Trials (2000), available at http://grants.nih.gov/grants/guide/notice-files/NOT-OD-00-038.html; and National Institutes of Health, NIH Policy 
for Data and Safety Monitoring (1998), available at http://grants.nih.gov/grants/guide/notice-files/not98-084.html.
    The exception is intended to facilitate DSMB service, while 
maintaining the restrictions if a substantially affected organization 
selects the members of the DSMB or pays for their service, or if the 
protocol is funded by the NIH. The exception is also unavailable if the 
activity would violate the HHS-wide prohibitions in 5 CFR 
5501.106(c)(1) and (2) relating to the compensated preparation of 
documents intended for submission to HHS and working for pay on an HHS-
funded activity.
    Fourth, NIH employees also have served on grant and scientific 
review committees for private foundations and other grant-making 
entities to assist those institutions in awarding their own funds to 
qualified applicants. NIH employees lend their considerable expertise 
in judging scientific merit, project feasibility, and other factors. As 
a result of the interim final rule, private foundations that funded 
scientific research activities would have been considered an RTPSA 
inasmuch as they are organizations that are ``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.'' 70 FR 5560. Serving on grant 
and scientific review committees for private foundations and other 
grant-making entities is in the public interest, even where done in a 
personal capacity. Accordingly, the rule is amended to provide an 
appropriate exception.
    For the most part, permitting this activity has been accomplished 
by removing RTPSAs from the list of organizations described in Sec.  
5501.109(c)(1); however, because an SRI or an HCPI can also make grant 
awards, an exception in new paragraph (c)(3)(viii) is added. For 
example, a private foundation that makes research grants might itself 
receive a training or conference grant from the NIH and thus may be 
considered an SRI. Absent the exception, an employee might be precluded 
from serving on a body that assists the private foundation in awarding 
research grants. Similarly, a university or hospital within the SRI and 
HCPI categories might receive a donation or bequest intended for the 
purpose of making research grants. Those entities also may convene 
groups to advise on the selection of grantees.
    The exception does not permit an employee to serve on a grant or 
scientific review committee for a grant award or program funded by the 
NIH. In addition, if the employee is paid to serve on a grant or 
scientific review committee, such service cannot involve the 
preparation of documents intended for submission to HHS within the 
meaning of Sec.  5501.106(c)(1), and the grant award or program about 
which the committee provides input cannot be an HHS-funded activity as 
described in Sec.  5501.106(c)(2). A further caveat is that a 
substantially affected organization cannot select the members of the 
grant or scientific review committee or pay them for their service. 
Provided that the funding institution retains control of member 
selection and payment, this caveat is not intended to preclude such 
service if a substantially affected organization provides an 
unrestricted grant to the funding institution.
    Paragraphs (c)(4) and (c)(5), which provided a transitional grace 
period with an opportunity for an extension of time for terminating 
outside activities prohibited by paragraph (c)(1), are removed. The 
time periods calculated from the date of publication of the interim 
final rule, February 3, 2005, have passed, and such activities should 
now have ceased.
Section 5501.110 Prohibited Financial Interests Applicable to Employees 
of the National Institutes of Health
    Section 5501.110 of the interim final rule prohibited employees of 
the NIH who file either a public or confidential financial disclosure 
report, and their spouses and minor children, from owning stock and 
having other financial interests in substantially affected 
organizations, subject to certain exceptions. All other NIH employees 
(as well as those confidential filers excluded from coverage by the 
rule) were subject to a $15,000 limit on the holding or acquisition of 
such interests and certain other restrictions. All NIH employees were 
permitted to invest freely in widely diversified, publicly traded 
mutual funds, even if those funds owned shares in substantially 
affected organizations. The rule also allowed spouses, and employees 
who came from industry, to retain financial interests derived from 
industry employment, such as stock options distributed as compensation, 
provided any resulting conflicts were managed appropriately.
    Although these provisions were no more onerous than existing 
financial holdings restrictions that have applied to FDA employees 
since 1972, the commenters urged the Department to treat NIH employees 
differently than their counterparts at FDA because the NIH is not 
primarily a regulatory agency. They also criticized the application of 
the prohibited holdings rule to all NIH employees regardless of their 
relative seniority within the organization or the nature of their 
official duties. Some commented on the focus on substantially affected 
organizations for all employees rather than on office supplies, 
computer equipment, and travel-related businesses with which certain 
employees may have conflicts under pre-existing government-wide rules. 
A number of commenters asked why the rules applied to spouses and minor 
children who have no impact on the pharmaceutical and biotechnology

[[Page 51565]]

industries, and questioned more generally the exclusion of an entire 
economic sector from family investment and retirement portfolios.
    Many comments demonstrated that the existing law governing 
conflicts of interest is not well understood. In arguing for 
elimination of the prohibited holdings rule, a number of commenters 
assumed incorrectly that a return to the status quo existing prior to 
the interim final rule invariably would preserve their ability to hold 
financial interests in substantially affected organizations, without 
realizing that each employee's situation would still be subject to a 
case-by-case analysis that could result in a directed divestiture. 
Others believed incorrectly that potential conflicts can be managed 
with full disclosure or that no violation can occur as long as the 
employee's actions do not actually move stock prices. Apparently 
unaware that those who give advice, conduct research, or recommend 
action in a government matter can be fully culpable, others saw no need 
to limit stock holding because they believed erroneously that only 
decision makers would have financial conflicts. Other commenters 
criticized a mechanistic or legalistic approach to conflicts without 
fully comprehending that Federal law prescribes very specific 
standards.
    In implementing those standards, the interim final rule imposed a 
significantly changed environment for handling potential conflicts of 
interest arising from financial interests in substantially affected 
organizations. Congressional oversight and media reports included 
references to situations in which the connection to industry derived 
from financial holdings, and not solely from outside consulting. The 
new rule replaced a case-by-case evaluation of an employee's duties and 
financial interests with a bright-line rule designed to eliminate 
financial conflicts altogether. The rule encompassed the holdings of a 
spouse and minor children because their interests are imputed to the 
employee under the criminal conflict of interest statute, 18 U.S.C. 
208. The changes wrought by the interim final rule were intended to 
protect both the employee and the agency more effectively.
    Regulations governing the conduct of the employees of any agency 
must reflect the agency's effect on its constituents and stakeholders. 
The pharmaceutical, biotechnology, and health care industries have 
changed substantially over the past two decades, and continue to evolve 
at a rapid pace. The NIH does not exist or work in a vacuum. Every day, 
the NIH announces findings or results, scientific priorities, or 
strategic relationships or plans that impact companies in those fields. 
Any agency that has this power must hold itself and its employees to an 
appropriate standard. Given the complexity of the financial interests 
in those industries, monitoring and identifying conflict of interest 
situations on a case-by-case basis was no longer considered feasible 
for the NIH.
    The interim final rule recognized no difference between 
``regulatory'' and ``non-regulatory'' agencies because the legal 
standards applicable to employee conduct do not make such distinctions. 
Government agencies, without regard to how their functions may be 
characterized, exercise significant influence over the activities of 
non-Federal entities. A core mission of the NIH is to provide the basic 
science that forms the foundation upon which non-Federal research and 
development may proceed. Moreover, the potential to affect the 
financial interests of pharmaceutical and biotechnology companies 
through clinical trials can be significant. Most importantly, the rule 
was intended to assure the public in general, and human subjects 
enrolled in NIH trials in particular, that public health decisions 
would be made without even the appearance of influence from extraneous 
financial interests.
    Prohibited holdings regulations similar to those applicable to the 
NIH have been considered an appropriate means to manage potential 
conflicts and address appearance concerns at various government 
agencies or agency subcomponents. The prohibitions at those agencies 
also apply to the financial interests of the employee, spouse, and 
minor children, and are enforced without regard to the nature of the 
individual employee's duties. For example, the Department of Housing 
and Urban Development (HUD) prohibits employee ownership of financial 
interests in housing and other real estate projects that HUD subsidizes 
and bars investments in Fannie Mae stock or the securities of other 
companies that are collateralized by Fannie Mae securities. 5 CFR 
7501.104. At the Department of the Treasury, the Office of the 
Comptroller of the Currency bans investments in the banking industry. 5 
CFR 3101.108. Various components of the Environmental Protection Agency 
(EPA) preclude investments in the automotive, pesticide, and mining 
industries, and EPA information resources management employees cannot 
own stock in data management, computer, or information processing 
firms. 5 CFR 6401.102. At the Department of Transportation, Federal 
Railroad Administration employees cannot invest in railroads, and 
Federal Aviation Administration employees are barred from owning stock 
in an airline or aircraft manufacturing company, or in their suppliers 
of components or parts. 5 CFR 6001.104.
    Against this background, retaining a prohibited holdings regulation 
at the NIH is amply justified, and comments urging the elimination of 
the provision have not been adopted. Some commenters recommended 
retargeting the prohibition toward various subsets of the employee 
population. These suggestions have received serious consideration, 
although a number of concerns remain. Retargeting the financial 
holdings prohibition will require most employees to acquire a more 
detailed understanding of the law and assume a greater degree of 
personal responsibility for their actions.
    Under the criminal conflict of interest statute, 18 U.S.C. 208, and 
OGE regulations in 5 CFR parts 2635 and 2640, employees, as well as 
their spouses and minor children, generally are not able to own stock 
valued above certain limits if the employees' official duties require 
them to be involved in particular matters that either involve a company 
in which they, their spouse, or minor children own stock or that would 
affect the financial interests of such a company or industry. Absent a 
waiver under Sec.  208(b), conflicting assets worth more than these 
limits can be retained only if the employee, without materially 
impairing his ability to perform the duties of his position, can recuse 
from working on a matter that would affect the company, and provided 
that the arrangement does not adversely affect the agency's ability to 
accomplish its mission.
    The task of monitoring investments and recusing appropriately is 
particularly challenging in an era where mergers, acquisitions, joint 
ventures, licensing agreements, and corporate name changes are common 
in the biomedical industry. One of the goals of the prohibited holdings 
rule was to avoid putting employees into a position where, in a fast 
paced work environment, they might participate in a government matter 
at their peril. Further, it had become increasingly difficult to sort 
through, on a case-by-case basis, these individual circumstances and 
police such situations to the degree required to maintain public 
confidence. These concerns remain, but there are other means to attain 
the desired objective, including increased staffing and resources to 
address the problem, a massive and continuous effort at

[[Page 51566]]

training employees, and holding employees personally accountable for 
knowing their holdings and recognizing the financial consequences of 
agency actions in which they may participate. The majority of 
commenters encouraged the agency to retarget the prohibited holdings 
rule. Many expressed their belief that stricter enforcement of prior 
rules would have avoided the problems. They observed that the public 
perception of the NIH is dependent largely upon the actions of its 
leadership and of those who are most directly involved in making key 
decisions that affect human subjects enrolled in clinical trials. A 
regulatory scheme that insulated senior employees from financial ties 
to industry was urged as a more measured response to the ethics 
concerns at the NIH.
    The NIH has committed additional staff and resources to ethics 
program administration. Detailed training development is underway, and 
a renewed commitment to enforce the rules and to pursue appropriate 
corrective actions is evident. In this context, the Department has 
decided to adopt the recommendation that the prohibited holdings rule 
be limited to senior employees.
    For this purpose, ``senior employee'' will include the NIH Director 
and the NIH Deputy Director; members of the senior staff within the 
Office of the Director who report directly to the NIH Director; the 
Directors, the Deputy Directors, Scientific Directors, and Clinical 
Directors of each NIH institute and center (IC); extramural program 
officials who report directly to an IC Director; and any employee of 
equivalent levels of decision-making 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.
    Senior employees, their spouses, and minor children will be barred 
from having financial interests in substantially affected 
organizations, subject to the exceptions for pensions and other 
employee benefits, diversified mutual funds, and exceptional 
circumstances that existed under the interim final rule. In addition, 
because the OGE regulatory exemptions in 5 CFR 2640.201 and 2640.202 
allow an employee to participate in certain types of matters depending 
upon the value of sector mutual fund interests and publicly traded 
securities within the investment portfolio of the employee, spouse, and 
minor children, Sec.  5501.110 has been amended to allow senior 
employees to take advantage of the OGE exemptions. Under current de 
minimis thresholds, and subject to certain limitations, senior 
employees, their spouses, and minor children will be permitted to 
retain investments in SAOs capped at $15,000 in any one company. 
Although they may own multiple $15,000 holdings in SAOs, provided their 
cumulative interests in SAOs and SAO sector funds are less than 50 
percent of their total investments, senior employees will be required, 
through broker instructions or otherwise, to monitor capital 
appreciation and divest any portion that exceeds $15,000. Similarly, 
total investments in sector funds that state in a prospectus the 
objective or practice of concentrating their investments in the 
securities of substantially affected organizations will be capped at 
$50,000. In calculating the fair market value of any holdings, 
including stock options, that are subject to these exemption limits, 
guidance issued by OGE for reporting asset values for financial 
disclosure purposes will apply. Other generally accepted valuation 
principles, not inconsistent with OGE guidance, also may be utilized.
    The $15,000 cap will adjust automatically to any change in the 
exemption limit for matters involving parties at 5 CFR 2640.202(a), and 
the $50,000 cap will change in tandem with the sector fund monetary 
limit at 5 CFR 2640.201(b). As was the case in the interim final rule, 
although the dollar amounts are linked, an NIH exception and an OGE 
exemption may not be identical. For example, not all financial 
interests valued at $15,000 or less will be covered by the OGE 
regulatory exemption. Although the NIH exception permits a senior 
employee 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. Similarly, the NIH exception would permit ownership of 
stock options valued at $15,000 or less, but the OGE regulatory 
exemption for interests in securities would not apply. Accordingly, 
senior 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 exceptional circumstances exception to the prohibited holdings 
rule, formerly found in paragraph (d)(3) of the interim final rule and 
now codified in the final rule as paragraph (d)(4), is amended to 
clarify that an exception may be granted to a class of individuals. 
Although the prohibition in Sec.  5501.110(c) has been significantly 
narrowed in its application only to senior employees, their spouses and 
minor children, class exceptions may be appropriate where the 
identified class shares a common factual pattern and the requisite 
reasons for an exception are similarly evident. An example might be an 
exception for financial interests held by minor children of new entrant 
senior employees where the minors are within a certain number of months 
of attaining the age of majority, and the conflict arising from the 
retention of the financial interests can be managed through appropriate 
recusals for a time-limited period. Another example might address the 
inheritance by a senior employee of a prohibited financial interest a 
few months before retirement.
Section 5501.111 Awards Tendered to Employees of the National 
Institutes of Health
    Section 5501.111, as added by the interim final rule, mandated that 
a senior NIH employee would not be permitted to accept a gift with an 
aggregate market value of more than $200, or cash or an investment 
interest, that constituted an award or incident to an award given 
because of the employee's official position or from a prohibited 
source. (Although often referred to as an award, an honor or other 
recognition that entailed only the receipt of a plaque or other item of 
little intrinsic value presented at a gathering of interested persons 
could be accepted if the presentation item satisfied the criteria for 
exclusion from the gift definition in 5 CFR 2635.203(b), and the free 
attendance, including food, refreshments, and entertainment, at the 
event met the exception requirements for widely attended gatherings and 
other events in 5 CFR 2635.204(g)).
    Section 5501.111 prohibited non-senior employees from accepting 
awards 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

[[Page 51567]]

categories. In other words, such NIH employees could not accept a cash 
award or one valued at more than $200 that was tendered by a donor that 
had 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.
    Upon further consideration, given that the official position and 
prohibited source criteria for precluding awards to senior employees 
added little to the official responsibility test applicable to every 
other employee, section 5501.111 is amended to apply one uniform rule 
for all employees based on whether the award donor has matters pending 
under the employee's official responsibility. The section incorporates 
the definition of ``official responsibility'' contained in 18 U.S.C. 
202(b): ``the direct administrative or operating authority, whether 
intermediate or final, and either exercisable alone or with others, and 
either personally or through subordinates, to approve, disapprove, or 
otherwise direct Government action.''

B. Supplemental Financial Disclosure Regulations

5502.105 Agency Procedures
    The provision governing reporting procedures is amended to codify 
the authority of the designated agency ethics official or separate 
agency components, with the concurrence of the designated agency ethics 
official, to prescribe standard forms for the collection of information 
deemed necessary or appropriate to implement part 5502.
5502.106 Supplemental Disclosure of Prohibited Financial Interests 
Applicable to Employees of the Food and Drug Administration
    Section 5502.106, as added by the interim final rule, required 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. This final rule specifies that the value of such interests 
must be reported. It also removes from Sec.  5502.106 those provisions 
applicable to NIH employees and places them in a new Sec.  5502.107 in 
order to correlate with the changes made to the NIH prohibited holdings 
regulation.
5502.107 Supplemental Disclosure of Financial Interests in 
Substantially Affected Organizations Applicable to Employees of the 
National Institutes of Health
    New Sec.  5502.107 carries forward the same reporting obligations 
previously contained in Sec.  5502.106, and clarifies that the value of 
the reported interests must be disclosed, but revises the class of NIH 
employees subject to the reporting requirement. With the changes made 
to 5 CFR 5501.110, subjecting every employee to an extensive and 
burdensome disclosure obligation is no longer required. Although only 
senior NIH employees are now subject to a prohibited holdings rule, 
Sec.  5502.107 will require disclosure of financial interests in 
substantially affected organizations by filers of public and 
confidential financial disclosure reports and those employees who are 
not filers but who serve as clinical investigators designated in an NIH 
clinical research protocol approved by an institutional review board. 
The term ``clinical investigator'' means the principal investigator, 
accountable investigator, lead associate investigator, medical advisory 
investigator, associate investigators, and other subinvestigators who 
make direct and significant contributions to the NIH clinical study, 
and may include registered nurses and allied health professionals so 
designated. Those employees who file public or confidential financial 
disclosure reports or who serve as clinical investigators possess 
budgetary, grant-making, or research authority, exercise discretion at 
higher levels within the agency, or are in positions with the potential 
to affect significantly the life and safety of human subjects. Because 
holdings in substantially affected organizations may continue to pose 
conflicts for this cohort of employees, and divestiture on a case-by-
case basis may be required, disclosure continues to play a critical 
role in ethics program administration. Accordingly, depending on the 
number of clinical research protocols approved each year, approximately 
one-third to one-half of the NIH employee population will remain 
subject to the disclosure requirement specified in Sec.  5502.107.
    New Sec.  5502.107 also restarts the initial reporting date for on-
duty employees subject to the revised disclosure rule. Public filers, 
confidential filers, and clinical investigators on duty at the NIH on 
the effective date of this final rule must report in writing on or 
before October 31, 2005, their holdings in substantially affected 
organizations held on the date the report is filed. Under the prior 
regulation, the initial report presented a snapshot of an employee's 
holdings as of the effective date of the rule. As a result of filing 
extensions, a considerable gap in time could make the information on 
the filed report out-of-date. Accordingly, under new Sec.  5502.107, 
the initial disclosure report must be current as of the date of filing.

IV. Matters of Regulatory Procedure

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.

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 recordkeeping requirements.


[[Page 51568]]


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

    Dated: August 25, 2005.
Michael O. Leavitt,
Secretary, Department of Health and Human Services.

    Approved: August 26, 2005.
Marilyn L. Glynn,
General Counsel, 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, adopts as a final rule the interim final rule that amended 5 
CFR part 5501 and added 5 CFR part 5502, which was published at 70 FR 
5543 on February 3, 2005, and which was amended by the interim final 
rule published at 70 FR 37009 on June 28, 2005, with the following 
changes:

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 the first sentence of the 
introductory text in paragraph (c) to read as follows:


Sec.  5501.101  General.

* * * * *
    (c) Definitions. Unless a term is otherwise defined in this part, 
the definitions set forth in 5 CFR parts 2635 and 2640 apply to terms 
in this part. * * *
* * * * *

0
3. Amend Sec.  5501.102 by revising paragraph (b)(1) to read as 
follows:


Sec.  5501.102  Designation of HHS components as separate agencies.

* * * * *
    (b) Definitions--(1) Employee of a component includes, in addition 
to employees actually within a component, an employee of the Office of 
the General Counsel whose regularly assigned duties and 
responsibilities principally involve the provision of legal services to 
the relevant component with respect to substantive programmatic issues.
* * * * *

0
4. Amend Sec.  5501.106 as follows:
0
a. Revise paragraph (c)(3)(ii)(B) to read as set forth below;
0
b. Revise paragraphs (d)(1) and (d)(2) to read as set forth below;
0
c. Redesignate paragraphs (d)(3) through (d)(6) as (d)(4) through 
(d)(7);
0
d. Add new paragraph (d)(3) to read as set forth below;
0
e. Revise redesignated paragraphs (d)(4)(ii)(D) and (d)(4)(ii)(E) to 
read as set forth below;
0
f. Redesignate paragraphs (d)(4)(ii)(F) through (d)(4)(ii)(N) as 
(d)(4)(ii)(G) through (d)(4)(ii)(O);
0
g. Revise redesignated paragraphs (d)(4)(ii)(I) through (d)(4)(ii)(K) 
to read as set forth below;
0
h. Add new paragraph (d)(4)(ii)(F) to read as set forth below;
0
i. Remove the words ``paragraph (d)(3)'' in the second sentence of 
redesignated paragraph (d)(6) and add, in their place, the words 
``paragraph (d)(4)'';
0
j. Revise paragraph (e) to read as set forth below.
    The additions and revisions read as follows:


Sec.  5501.106  Outside employment and other outside activities.

* * * * *
    (c) * * *
    (3) * * *
    (ii) * * *
    (B) The employment primarily involves manual or unskilled labor or 
utilizes talents, skills, or interests in areas unrelated to the 
substantive programmatic activities of the FDA, such as clerical work, 
retail sales, service industry jobs, building trades, maintenance, or 
similar services.
* * * * *
    (d) Prior approval for outside employment and other outside 
activities-(1) General approval requirement. Except as provided in 
paragraph (d)(3) of this section, an employee shall obtain written 
approval prior to engaging, with or without compensation, in outside 
employment, including self-employed business activities, or other 
outside activities in which the employee seeks to:
    (i) Provide consultative or professional services, including 
service as an expert witness;
    (ii) Engage in teaching, speaking, writing, or editing that:
    (A) Relates to the employee's official duties within the meaning of 
5 CFR 2635.807(a)(2)(i)(B) through (E); or
    (B) Would be undertaken as a result of an invitation to engage in 
the activity that was extended to the employee by a person or 
organization that is a prohibited source within the meaning of 5 CFR 
2635.203(d), as modified by the separate HHS component agency 
designations in Sec.  5501.102; or
    (iii) Provide services to a non-Federal entity as an officer, 
director, or board member, or as a member of a group, such as a 
planning commission, advisory council, editorial board, or scientific 
or technical advisory board or panel, which requires the provision of 
advice, counsel, or consultation.
    (2) Additional approval requirement for employees of the Food and 
Drug Administration and the National Institutes of Health. 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, with or without compensation, in any outside employment, as 
defined in 5 CFR 2635.603(a), with, or any self-employed business 
activity involving the sale or promotion of products or services of, 
any person or organization that is a prohibited source of the 
employee's component agency.
    (3) Exceptions to prior approval requirements. (i) Notwithstanding 
the requirements of paragraphs (d)(1) and (d)(2) of this section, prior 
approval is not required for participation in the activities of a 
political, religious, social, fraternal, or recreational organization 
unless:
    (A) The activity or the position held in the organization requires 
the provision of professional services within the meaning of paragraph 
(b)(3) of this section; or
    (B) The activity is performed for compensation other than the 
reimbursement of expenses.
    (ii) Notwithstanding the requirements of paragraphs (d)(1) and 
(d)(2) of this section, prior approval is not required for 
participation in an employment or other outside activity that has been 
exempted under paragraph (d)(7) of this section.
    (4) * * *
    (ii) * * *
    (D) A description of how the employee's official duties will affect 
the interests of the person for whom or organization with which the 
proposed activity will be performed;
    (E) The name and address of the person for whom or organization 
with which the work or activity will be done, including the location 
where the services will be performed;

[[Page 51569]]

    (F) A statement as to whether travel is involved and, if so, 
whether the transportation, lodging, meals, or per diem will be at the 
employee's expense or provided by the person for whom or organization 
with which the work or activity will be done, and a description of the 
arrangements and an estimate of the costs of items to be furnished or 
reimbursed by the outside entity;
    (G) 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;
    (H) 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;
    (I) The method or basis of any compensation to be received (e.g., 
fee, honorarium, retainer, salary, advance, royalty, stock, stock 
options, non-travel related expenses, or other form of remuneration 
tendered in cash or in-kind in connection with the proposed activity) 
from the person for whom or organization with which the work or 
activity will be done;
    (J) The amount of any compensation to be received from the person 
for whom or organization with which the work or activity will be done;
    (K) The amount and date of any compensation received, or due for 
services performed, within the current and previous six calendar years 
immediately preceding the submission of the request for approval from 
the person for whom or organization 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);
    (L) 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;
    (M) 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;
    (N) 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)(7) of this section; and
    (O) 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.
* * * * *
    (6) 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)(4) of this 
section. * * *
* * * * *
    (e) Waivers. The designated agency ethics official may grant a 
written waiver, for an individual or class of similarly situated 
individuals, 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. An individual or class waiver under this 
paragraph may impose appropriate conditions, such as requiring 
execution of a written disqualification.

0
5. Amend Sec.  5501.109 as follows:
0
a. Remove paragraph (b)(6);
0
b. Redesignate paragraphs (b)(7) through (b)(11) as (b)(9) through 
(b)(13);
0
c. Redesignate paragraph (b)(5) as (b)(8);
0
d. Add new paragraphs (b)(6) and (b)(7) to read as set forth below;
0
e. Redesignate paragraphs (b)(3) and (b)(4) as (b)(4) and (b)(5);
0
f. Add new paragraph (b)(3) to read as set forth below;
0
g. Revise redesignated paragraphs (b)(4), (b)(8), (b)(10), (b)(11), and 
(b)(13) introductory text to read as set forth below;
0
h. Revise paragraph (c)(1) to read as set forth below;
0
i. Revise paragraphs (c)(3)(i), (c)(3)(iii) and (c)(3)(v) to read as 
set forth below;
0
j. Add new paragraphs (c)(3)(vi) through (c)(3)(viii) to read as set 
forth below;
0
k. Remove paragraphs (c)(4) and (c)(5).
    The additions and revisions read as follows:


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

* * * * *
    (b) * * *
    (3) Data and safety monitoring board (DSMB) means a board, 
committee, or panel constituted in connection with an ongoing clinical 
study and comprised of individuals, other than the study sponsors, 
organizers, and investigators, who possess expertise in relevant 
specialties and disciplines, such as trial design, biostatistics, and 
bioethics, and who review accumulating safety and outcome data in order 
to ensure the continuing safety of the participating human subjects and 
of those yet to be recruited, and to assess the continuing validity and 
scientific merit of the investigation.
    (4) Educational activity provider means a supported research 
institution or a health care provider or insurer that presents Grand 
Rounds or 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.
    (5) Employment has the meaning specified in 5 CFR 2635.603(a).
    (6) Grand Rounds means a regularly scheduled, interactive 
presentation or series of educational seminars that focus on clinical 
cases, recent biomedical or behavioral research results, or a review of 
scientific research methods and findings in a specific field, with 
supporting basic and clinical science information, that are conducted 
in an accredited medical school or an affiliated teaching hospital 
setting that provides practicing physicians, faculty, fellows, resident 
physician trainees, medical students, graduate students, and post-
doctoral fellows, as well as allied and associated health 
professionals, and other staff, an

[[Page 51570]]

opportunity to evaluate outcomes of patient treatment decisions, a 
forum to discuss clinical decision making, and a means to impart 
updates in diagnosis, treatment, therapy, and research as indicated by 
the context of the cases presented.
    (7) Grant or scientific review committee means a board, committee, 
or panel of qualified experts assembled by an external grant-making 
entity or other funding institution for the purpose of making a funding 
decision, the members of which review, evaluate, rate, rank, or 
otherwise assess a proposed or ongoing project or program for which 
grant support is sought on the basis of various factors, such as 
scientific merit, feasibility, significance, approach, and originality 
(and scientific progress in any previous period of funding), and gauge 
the ability of the applicant(s), principal and associate investigators, 
and scientific team members to complete successfully the project or 
program, and then recommend to the grantor whether to fund or continue 
to fund a particular proposal or ongoing program.
    (8) 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. 1395nn(h)(6) or 
1396b(w)(7)) and any entity organized and licensed as a risk-bearing 
entity eligible to offer health insurance or health benefits coverage.
    (9) 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.
    (10) 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)(10)(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.
    (11) 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)(11)(i) or (ii) of this section.
    (12) 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 Grand Rounds or 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.
    (13) 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 
or a health care provider or insurer 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: * * *
* * * * *
    (c) Prohibitions--(1) Prohibited outside activities with 
substantially affected organizations, supported research institutions, 
and health care providers or insurers. 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, or a health care 
provider or insurer;
    (ii) Teach, speak, write, or edit for compensation for any 
substantially affected organization, supported research institution, or 
health care provider or insurer; or
    (iii) Engage in any employment or 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.
* * * * *
    (3) * * *
    (i) Teaching. An employee may engage in and accept compensation 
for:
    (A) Teaching a course requiring multiple presentations as permitted 
under 5 CFR 2635.807(a)(3); or
    (B) Delivering a class lecture 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 regularly scheduled course offered under the 
established curriculum of an institution of higher education as defined 
at 20 U.S.C. 1001.
* * * * *
    (iii) Clerical, retail, service industry, building trades, 
maintenance, or similar services. An employee may engage in and accept 
compensation for any outside employment or self-employed business 
activity that primarily involves manual or unskilled labor or utilizes 
talents, skills, or interests in areas unrelated to the health and 
scientific research activities of the NIH, such as clerical work, 
retail sales, service

[[Page 51571]]

industry jobs, building trades, maintenance, or similar services.
* * * * *
    (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 or a health care provider or insurer 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 or a health care provider or insurer, this exception is 
inapplicable unless the substantially affected organization is involved 
only as an unrestricted financial contributor and exercises no 
editorial control.
    (vi) Data and safety monitoring boards. An employee may serve as a 
member of a data and safety monitoring board for a clinical study 
conducted by a supported research institution or health care provider 
or insurer, provided that:
    (A) The members of the DSMB are not selected or paid for their 
service by a substantially affected organization;
    (B) The clinical study is not funded under a grant, cooperative 
agreement, or research and development contract from, or conducted 
pursuant to a cooperative research and development agreement (CRADA) 
with, or aided under another funding mechanism by, the NIH; and
    (C) If the service is performed for compensation, the service does 
not entail prohibited assistance in the preparation of documents 
intended for submission to HHS within the meaning of Sec.  
5501.106(c)(1), and the clinical study is not an HHS-funded activity 
described in Sec.  5501.106(c)(2).
    (vii) Grand Rounds. 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 Grand 
Rounds program conducted by an accredited educational institution 
offering instruction in the life sciences, such as a medical school or 
school of public health, or by an affiliated teaching hospital, 
provided that:
    (A) The employee's presentation includes an interactive component, 
such as visiting patients or discussing individual clinical cases, or 
interacting for educational purposes with undergraduates, graduates, or 
post-graduate students and fellows, in addition to any lecture;
    (B) The audience is composed primarily of faculty and students or 
trainees registered in a biomedical or health-related program of 
studies; and
    (C) A substantially affected organization or a speakers' bureau 
affiliated with a substantially affected organization does not sponsor 
or underwrite the costs of the Grand Rounds program or the employee's 
presentation, except pursuant to an unrestricted educational grant.
    (viii) Grant or scientific review committee. An employee may serve 
on a grant or scientific review committee for a supported research 
institution or a health care provider or insurer, provided that:
    (A) The members of the grant or scientific review committee are not 
selected or paid for their service by a substantially affected 
organization;
    (B) The grant award or program in relation to which the 
recommendation of the grant or scientific review committee is sought is 
not funded under a grant, cooperative agreement, or research and 
development contract from, conducted pursuant to a cooperative research 
and development agreement (CRADA) with, or aided under another funding 
mechanism by, the NIH; and
    (C) If the service is performed for compensation, the service does 
not entail prohibited assistance in the preparation of documents 
intended for submission to HHS within the meaning of Sec.  
5501.106(c)(1), and the grant award or program in relation to which the 
recommendation of the grant or scientific review committee is sought is 
not an HHS-funded activity described in Sec.  5501.106(c)(2).

0
6. Amend Sec.  5501.110 as follows:
0
a. Revise the section heading to read as set forth below;
0
b. Remove paragraphs (b)(1), (b)(2), and (b)(4);
0
c. Redesignate paragraph (b)(3) as (b)(2);
0
d. Revise redesignated paragraph (b)(2) to read as set forth below;
0
e. Add new paragraph (b)(1) to read as set forth below;
0
f. Remove paragraphs (c), (d), (e), and (f) and the notes to paragraphs 
(e)(1) and (e);
0
g. Redesignate paragraph (g) as (e) and revise redesignated paragraph 
(e) to read as set forth below;
0
h. Add new paragraphs (c) and (d) and notes to paragraphs (d)(1) and 
(d) to read as set forth below.
    The additions and revisions read as follows:


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

* * * * *
    (b) * * *
    (1) 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 
Directors, the Deputy Directors, Scientific Directors, and Clinical 
Directors 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 decision-making 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) Substantially affected organization has the meaning set forth 
in Sec.  5501.109(b)(10).
    (c) Prohibition applicable to senior employees. Except as permitted 
by paragraph (d) of this section, a senior employee or the spouse or 
minor child of such senior employee shall not have a financial interest 
in a substantially affected organization.
    (d) Exceptions for certain financial interests. Notwithstanding the 
prohibition in paragraph (c) of this section:
    (1) Pension or other employee benefit. A senior employee or spouse 
or minor child of a senior 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 (d)(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) De minimis holdings. A senior employee or spouse or minor child 
of a senior employee may have a financial interest in a substantially 
affected organization if:
    (i) The aggregate market value of the combined interests of the 
senior employee and the senior employee's spouse and minor children in 
any one substantially 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;

[[Page 51572]]

    (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 
and sector mutual funds that, in the literature they distribute to 
prospective and current investors or participants, state the objective 
or practice of concentrating their investments in the securities of 
substantially affected organizations account for less than 50 percent 
of the total value of the combined investment portfolios of the senior 
employee and the senior employee's spouse and minor children.
    (3) Diversified mutual funds. A senior employee or spouse or minor 
child of a senior 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.
    (4) Exceptional circumstances. 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 a senior employee, or the 
spouse or minor child of a senior employee, or a class of such 
individuals, to hold a financial interest in a substantially affected 
organization based upon a determination that 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.
    (5) Technology transfer. A senior 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.
    (6) Sector mutual funds. (i) A senior employee or spouse or minor 
child of a senior employee may have an interest in a substantially 
affected organization that constitutes any interest in a sector mutual 
fund that, in the literature it distributes to prospective and current 
investors or participants, does not indicate the objective or practice 
of concentrating its investments in the biomedical science, 
pharmaceutical, medical device, biotechnology, or health industry 
sectors.
    (ii) A senior employee or spouse or minor child of a senior 
employee may have an interest in a substantially affected organization 
that constitutes any interest in a sector mutual fund that, in the 
literature it distributes to prospective and current investors or 
participants, states the objective or practice of concentrating its 
investments in the securities of substantially affected organizations 
provided that:
    (A) The aggregate market value of the combined ownership interests 
of the senior employee and the senior employee's spouse and minor 
children in such sector funds is equal to or less than the de minimis 
exemption limit for sector mutual funds established by 5 CFR 
2640.201(b)(2)(i) or $50,000, whichever is greater; and
    (B) The total holdings in substantially affected organizations and 
in sector mutual funds that, in the literature they distribute to 
prospective and current investors or participants, state the objective 
or practice of concentrating their investments in the securities of 
substantially affected organizations account for less than 50 percent 
of the total value of the combined investment portfolios of the senior 
employee and the senior employee's spouse and minor children.


    Note to Paragraph (d): 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.


    (e) 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 (c) 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.  5502.107(c) of 
this chapter is due.

0
7. Amend Sec.  5501.111 as follows:
0
a. Redesignate paragraphs (b), (c), and (d) as (c), (d) and (e);
0
b. Redesignate the note to paragraph (b) as the note to paragraph (c);
0
c. Add new paragraph (b) to read as set forth below;
0
d. Remove redesignated paragraph (c)(1) and redesignate paragraphs 
(c)(2) and (c)(3) as (c)(1) and (c)(2);
0
e. In the introductory text of redesignated paragraph (c)(1), remove 
the phrase ``other than a senior employee'';
0
f. Revise redesignated paragraph (c)(1)(iv) to read as set forth below;
0
g. Revise the introductory text of redesignated paragraph (d) to read 
as set forth below;
0
h. Revise redesignated paragraphs (d)(2) and (d)(3) to read as set 
forth below;
0
i. Revise redesignated paragraph (e)(1) and the introductory text of 
redesignated paragraph (e)(2) to read as set forth below.
    The additions and revisions read as follows:


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

* * * * *
    (b) Definitions. For purposes of this section, official 
responsibility has the meaning set forth in 18 U.S.C. 202(b).
    (c) 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 employees with official 
responsibility for matters affecting an award donor. An 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:
* * * * *
    (iv) Is an organization a majority of whose members are described 
in paragraphs (c)(1)(i) through (iii) of this section.
    (2) 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

[[Page 51573]]

the award is not prohibited by statute or Federal regulation, including 
5 CFR part 2635 and this part.


    Note to Paragraph (c): 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.


    (d) Exception. Notwithstanding the prohibition in paragraph (c)(1) 
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:
* * * * *
    (2) Absent the prohibition in paragraph (c)(1) 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 (c)(1) 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.
    (e) Disposition of improperly accepted awards.--(1) Failure to 
obtain prior approval. If an employee accepts an award for which 
approval is required under paragraph (c)(2) 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 by paragraph (c)(1) of this section, the employee shall be 
required, in addition to any penalty provided by law and applicable 
regulations, to:
* * * * *

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

0
8. The authority citation for part 5502 continues to read as follows:

    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.  5502.102  [Amended]

0
9. Amend Sec.  5502.102 by removing from the second sentence the 
citation to ``Sec.  5501.106(d)(4)'' and add in its place the citation 
``Sec.  5501.106(d)(5)''.

0
10. Amend Sec.  5502.105 by revising paragraph (a) to read as follows:


Sec.  5502.105  Agency procedures.

    (a) 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 forms for the collection of information under this part and 
establish procedures for the submission and review of each report 
filed. These procedures may provide for filing extensions, for good 
cause shown, totaling not more than 90 days.
* * * * *

0
11. Amend Sec.  5502.106 by revising the section heading and paragraphs 
(b)(2) and (c) to read as follows:


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

* * * * *
    (b) * * *
    (2) Prohibited financial interest means a financial interest 
prohibited by Sec.  5501.104(a), including those financial interests 
that are excepted under Sec.  5501.104(b) 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 any prohibited financial interest and the 
value thereof held upon commencement of employment with the agency.
    (2) Reassigned employees. An employee of a separate agency 
component other than the FDA or of the remainder of HHS who is 
reassigned to a position at the FDA shall report in writing within 30 
days of entering on duty with the FDA any prohibited financial interest 
and the value thereof held on the effective date of the reassignment to 
the agency.
    (3) Incumbent employees. An incumbent employee of the FDA who 
acquires any prohibited financial interest shall report such interest 
and the value thereof in writing within 30 days after acquiring the 
financial interest.

0
12. Add new Sec.  5502.107 to read as follows:


Sec.  5502.107  Supplemental disclosure of financial interests in 
substantially affected organizations 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) Clinical investigator means an employee identified as a 
principal investigator, accountable investigator, lead associate 
investigator, medical advisory investigator, associate investigator, or 
other subinvestigator in an NIH clinical study involving human subjects 
under a clinical research protocol approved by an institutional review 
board.
    (2) Clinical research has the meaning set forth in 42 U.S.C. 
284d(b).
    (3) Institutional review board (IRB) means any board, committee, or 
other group formally designated by an institution to review a clinical 
research protocol and approve the initiation of biomedical research 
involving human subjects and to assess periodically the progress of the 
investigation to protect the rights and welfare of the trial 
participants.
    (4) 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.
    (5) 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.
    (6) Remainder of HHS has the meaning set forth in Sec.  
5501.102(b)(2) of this chapter.
    (7) Separate agency component has the meaning set forth in Sec.  
5501.102(a) of this chapter.
    (8) Substantially affected organization has the meaning set forth 
in Sec.  5501.109(b)(10) of this chapter.
    (c) Report of financial interests in substantially affected 
organizations.--(1) New entrant employees. A new entrant employee, 
other than a public filer or a confidential filer, who is designated to 
serve as a clinical investigator shall report in writing within 30 days 
after entering on duty with the NIH any financial interest in a 
substantially affected organization and the value thereof held upon 
commencement of employment with the agency.
    (2) Reassigned employees. An employee of a separate agency

[[Page 51574]]

component, other than the NIH, or of the remainder of HHS who is either 
a public filer, a confidential filer, or a clinical investigator who is 
reassigned to a position at the NIH shall report in writing within 30 
days of entering on duty with the NIH any financial interest in a 
substantially affected organization and the value thereof held on the 
effective date of the reassignment to the agency.
    (3) Incumbent employees. An incumbent employee of the NIH who is 
either a public filer, a confidential filer, or a clinical investigator 
who acquires any financial interest in a substantially affected 
organization shall report such interest and the value thereof in 
writing within 30 days after acquiring the financial interest. Any 
incumbent employee, irrespective of financial disclosure filing status, 
who is designated a clinical investigator shall report in writing 
within 30 days of the approval of the clinical research protocol by the 
relevant institutional review board any financial interest in a 
substantially affected organization and the value thereof held on the 
date of the IRB approval.
    (4) Initial report by on duty employees. An employee on duty at the 
NIH on August 31, 2005, who is either a public filer, a confidential 
filer, or a clinical investigator shall report in writing on or before 
October 31, 2005, any financial interest in a substantially affected 
organization and the value thereof held on the date the report is 
filed.

[FR Doc. 05-17352 Filed 8-26-05; 4:12 pm]
BILLING CODE 4150-03-P