[Federal Register Volume 73, Number 244 (Thursday, December 18, 2008)]
[Rules and Regulations]
[Pages 76868-76891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30073]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400, 407, and 457

RIN 0563-AB73


General Administrative Regulations; Administrative Remedies for 
Non-Compliance

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the 
General Administrative Regulations; Administrative Remedies for Non-
Compliance to add additional administrative remedies that are available 
as a result of the enactment of section 515(h) of the Federal Crop 
Insurance Act (Act) (7 U.S.C. 1515(h)), make such other changes as are 
necessary to implement the provisions of section 515(h) of the Act, and 
to clarify existing administrative remedies.

DATES: Effective Date: This rule is effective January 20, 2009.

FOR FURTHER INFORMATION CONTACT: For further information, contact 
Cynthia Simpson, Director, Appeals, Litigation and Legal Liaison Staff, 
Risk Management Agency, United States Department of Agriculture, 1400 
Independence Avenue, SW., Room 4619, Stop 0806, Washington, DC 20250, 
telephone (202) 720-0642.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and budget (OMB) has determined that this 
rule is non-significant for the purposes of Executive Order 12866 and, 
therefore, it has not been reviewed by OMB.

Paperwork Reduction Act of 1995

    This rule does not constitute a collection of information under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

E-Government Act Compliance

    FCIC is committed to complying with the E-Government Act of 2002, 
to promote the use of the Internet and other information technologies 
to provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This rule contains no Federal mandates (under the 
regulatory provisions of title II of the UMRA) for State, local, and 
tribal governments or the private sector. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.

Regulatory Flexibility Act

    FCIC certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. All 
similarly situated participants are required to comply with the same 
standard of conduct contained in the Act, the regulations published at 
7 CFR chapter IV, the crop policies, and the applicable procedures. For 
example, any producer, whether growing 10 acres or 10,000 acres, 
submits the same documentation for insurance and for a claim. All 
agents, whether selling and servicing five policies or a hundred and 
five policies, are required to perform the same tasks for each. The 
consequences for failure to comply with the standards of conduct are 
also the same for all participants and other persons regardless of the 
size of their business. A Regulatory Flexibility Analysis has not been 
prepared since this regulation does not have a significant impact on a 
substantial number of small entities, and, therefore, this regulation 
is exempt from the provisions of the Regulatory Flexibility Act (5 
U.S.C. 605).

Federal Assistance Program

    This program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.450.

Executive Order 12372

    This program is not subject to the provisions of Executive Order 
12372, which require intergovernmental consultation with State and 
local officials. See the Notice related to 7 CFR part 3015, subpart V, 
published at 48 FR 29115, June 24, 1983.

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988 on civil justice reform. The provisions of this rule will 
not have a retroactive effect. The provisions of this rule will preempt 
State and local laws to the extent such State and local laws are 
inconsistent herewith.

Environmental Evaluation

    This action is not expected to have a significant economic impact 
on the quality of the human environment, health, and safety. Therefore, 
neither an Environmental Assessment nor an Environmental Impact 
Statement is needed.

Background

    This rule finalizes changes made to 7 CFR part 400, subpart R, 
Administrative Remedies for Non-Compliance that was published by FCIC 
on May 18, 2007, as a notice of proposed rulemaking in the Federal 
Register at 72 FR 27981-27988. In the Administrative Remedies for Non-
Compliance, FCIC proposed to include provisions in its regulation that 
were enacted with the passage of the Agricultural Rick Protection Act 
of 2000 (ARPA). Through the enactment of section 515(h) of the Act in 
ARPA, Congress significantly strengthened FCIC's ability to combat 
fraud, waste and abuse by establishing a strong system of 
administrative actions that are now applicable to all participants in 
the Federal crop insurance program.
    Now, producers, agents, loss adjusters, insurance providers and 
their employees and contractors, and any

[[Page 76869]]

other persons who willfully and intentionally provide any false or 
inaccurate information to FCIC or to an approved insurance provider 
with respect to a policy or plan of insurance or willfully and 
intentionally failed to comply with a requirement of FCIC are subject 
to remedial administrative remedies. In addition to disqualification 
from participating in the Federal crop insurance program, producers 
will be disqualified from receiving benefits under other various United 
States Department of Agriculture programs. In addition, civil fines 
have been increased. Now a civil fine can be imposed for each violation 
and the civil fine is the greater of $10,000 or the amount of pecuniary 
gain obtained as a result of the false or inaccurate information 
provided or the noncompliance with a requirement of FCIC.
    The public was afforded 30 days to submit written comments after 
the regulation was published in the Federal Register. A total of 128 
comments were received from 17 commenters. The commenters were seven 
insurance services organizations, one grower association, four 
insurance providers, two law firms, one public citizen, one agent, and 
one government employee. The comments received and FCIC's responses are 
as follows:
    Comment: One commenter stated that FCIC has taken significant 
actions since the implementation of the Act in 2000 to reduce fraud, 
waste and abuse of the crop insurance program. The commenter strongly 
supports FCIC's efforts to combat waste, abuse and fraud in FCIC 
programs and believes that those who knowingly and willfully abuse the 
program must be punished.
    Response: FCIC will continue to take such actions as are necessary 
to improve program integrity.

Length of Comment Period

    Comment: Several commenters stated that the thirty-day comment 
period was inadequate. The commenters asked that the comment period be 
extended by sixty days because of the serious nature of the proposed 
rule and in order for other affected individuals to comment and to 
fully understand the legal exposure they could face under the proposed 
rule.
    Response: FCIC usually gives 30 or 60 day comment period depending 
on the rule. Because this rule is implementing a law that has been in 
effect since June 2000, FCIC made the decision not to extend the 
comment period.

Section 400.451 General

    Comment: A commenter stated that ``waste'' and ``abuse'' are 
neither offenses defined by statute or regulation and that FCIC never 
has defined in a regulation, contract, policy, or procedure, the 
conduct or actions that constitute ``waste'' and ``abuse.'' The 
commenter asked that FCIC define ``waste'' and ``abuse.''
    Response: Combating fraud, waste and abuse are the obligation of 
all Government agencies. The imposition of these sanctions is one means 
to combat fraud, waste and abuse. However, there are numerous other 
actions taken by FCIC to combat fraud, waste and abuse. However, in the 
context of this rule, fraud, waste and abuse are not grounds for the 
imposition of sanctions. Sanctions are imposed for violations of 
section 515(h) of the Act and other relevant statutory provisions. The 
terms fraud, waste and abuse are not used except in the context of a 
policy statement. Therefore, inclusion of separate definitions may 
confuse persons into believing that sanctions can be imposed for 
allegations of fraud, waste and abuse. This is supported by many of the 
following comments which suggest that fraud must be proven before a 
sanction under section 515(h) of the Act can be imposed. No change has 
been made.
    Comment: A commenter stated that a person may abuse the crop 
insurance program without providing false information or violating FCIC 
procedures.
    Response: The crop insurance program may still be abused by a 
person without providing false information or violating FCIC 
procedures. Abuse can occur in any number of ways and FCIC continuously 
reviews the program to tighten program requirements to prevent other 
types of abuse. However, this rule is intended to preclude the specific 
abuses associated with the providing of false or inaccurate information 
and failure to comply with a requirement of FCIC.
    Comment: A commenter stated Sec.  400.451(b) is overbroad as it 
expands the rule to persons outside of the crop insurance program. For 
example, an accountant knowingly falsifies an insured's Schedule F and 
an insurance provider overpays on an Adjusted Gross Revenue claim based 
on that Schedule F, the commenter asked whether the accountant is 
subject to the sanctions of Sec.  400.454. The commenter asked that 
FCIC precisely identify the persons to be covered by subpart R.
    Response: Section 515(h) of the Act specifically refers to a 
producer, agent, loss adjuster, insurance provider or ``other person'' 
that intentionally provides false or inaccurate information to FCIC or 
to an approved insurance provider with respect to a policy. In the 
example given, an accountant who knowingly provides false information 
on a Schedule F may be subject to sanction under Sec.  400.454. 
However, unless the accountant is otherwise participating in the crop 
insurance program, disqualification would not be applicable. However, 
the accountant could be subject to civil fines. Section 515(h) of the 
Act was intended to sanction anyone who willfully and intentionally 
provides false or inaccurate information, not just direct participants. 
Therefore, its scope could encompass any person. For example, an 
elevator operator who provides false weight receipts or the seed dealer 
who falsifies a sales receipt would also be subject to sanctions under 
section 515(h) of the Act.
    Comment: A commenter stated that by making the proposed rule 
applicable to ``any other persons who may provide information to a 
program participant,'' the FCIC was improperly expanding the scope of 
persons subject to administrative sanctions beyond what is authorized 
in the Act. In addition, the phrase, ``any other persons who may 
provide information'' was imprecise and, therefore, subject to 
ambiguous construction.
    Response: As stated above, section 515(h) of the Act authorizes the 
scope of the sanction to apply to other than just producers, agents, 
loss adjusters or insurance providers. Congress expressly refers to 
``other persons.'' Therefore, the scope of this rule is authorized and 
can apply to virtually anyone who may provide information that is false 
or inaccurate. Therefore, there is no ambiguity. However, as stated 
above, persons who may not be participating in the crop insurance 
program or other United States Department of Agriculture (USDA) 
programs would likely be subject to civil fines instead of 
disqualification.
    Comment: A commenter is concerned that the proposed rule exposes 
too many innocent persons to the threat of civil fines and sanctions 
without focusing on the real wrong-doers. The rule proposes to cover a 
vast number of ``participants in the federal crop insurance program'' 
as well as any other persons who may provide information to a program 
participant. In addition, the definitions of affiliate, participant, 
person, and principal are broad and far reaching and may subject 
innocent persons to the threat of civil fines and sanctions. The 
commenter recommends these

[[Page 76870]]

definitions exclude those not actively involved in the submission, 
purchase or receipt of benefits of crop insurance policies.
    Response: In order to be subject to the sanctions under section 
515(h) of the Act, FCIC must be able to prove that the person willfully 
and intentionally provided false or inaccurate information or willfully 
and intentionally failed to comply with a requirement of FCIC. 
Therefore, it is not possible for the sanctions to be imposed on 
innocent persons. Further, the standards for the imputing of improper 
conduct are the same as that applied in debarments and ensures that 
only those persons responsible for the violation are sanctioned. As an 
additional check and balance, persons have the right to contest any 
sanction before it is imposed before an Administrative Law Judge. This 
will ensure that the burden of proof has been met.
    Comment: Several commenters stated that the proposed rule made the 
rule retroactive in effect. In the preamble, FCIC states, ``the 
provisions of this rule will not have a retroactive effect.'' However, 
the proposed rule at Sec.  400.451(d) states that the ``failure to 
comply with a requirement'' is applicable as of the date the proposed 
rule become effective. But, the rule with respect to a false or 
inaccurate statement is applicable to any act or omission occurring 
after June 20, 2000. The rule and FCIC's explanation of it are 
inconsistent as to its retroactivity. Because Congress did not grant 
FCIC the authority to promulgate retroactive rules, they can only be 
applied prospectively. To impose penalties for past conduct is improper 
and unlawful. Because it is unclear as to its retroactivity, the rule 
violates Executive Order 12988. The proposed rule should be changed so 
that the regulation clearly has no retroactive effect. The commenters 
asked that the rule become effective on the date rule becomes final.
    Response: FCIC has clarified when the provisions of this rule 
become effective. There is confusion because section 515(h) of the Act, 
which contains the sanction provisions applicable to false or 
inaccurate information that are the subject of this rule, have been in 
effect since June 2000. Further, since that date, those statutory 
provisions have been used to impose sanctions against persons that have 
provided false or inaccurate information after June 2000 because the 
statutory provisions were not in conflict with the regulation sanction 
provisions that existed during that time. Therefore, false or 
inaccurate information provided between June 20, 2000, and the date 
this rule becomes effective will continue to be processed under section 
515(h) of the Act and the regulations in effect prior to the date this 
rule becomes effective. For false or inaccurate information provided 
after the date this rule is effective will be processed under this 
rule.

Section 400.452 Definitions

A. In General

    Comment: A commenter stated that the proposed rule expanded the 
definition of ``person'' and added 17 more definitions which apply only 
to this subpart. FCIC does not describe the sources of many of the 
definitions.
    Response: FCIC expanded Sec.  400.452 to include terms used in the 
proposed rule. Most of the definitions will refer to terms and 
definitions contained in other regulations, such as the Common Crop 
Insurance Policy Basic Provisions to ensure consistency. With respect 
to the other definitions, FCIC has defined the terms in such a manner 
as to achieve the purpose of this rule. The rulemaking procedures do 
not require that administrative agencies document the source of all of 
its information.
    Comment: Several commenters make statements regarding removing (1) 
vague and ambiguous language, and (2) defining terms FCIC normally or 
routinely uses but has failed to define, such as ``benefit,'' 
``fraud,'' ``waste and abuse,'' ``wrongdoing,'' and ``knows or has 
reason to know.'' A commenter stated that the word ``benefit'' is used 
in the regulation but not defined. The proposed rule suggests benefit 
is not limited to monetary gains. The commenters also stated that if 
FCIC intends to impose sanctions for persons engaged in ``waste and 
abuse,'' the terms must be adequately defined to provide notice of the 
prohibited conduct. One commenter also stated that FCIC should add the 
definition of ``knows or has reason to know'' contained in 7 CFR 
1.302(o) to the proposed rule and make conforming changes to the 
balance of the proposed rule consistent with the text of this added 
definition.
    Response: FCIC has revised the rule to add definitions of 
``benefit,'' and ``knows or has reason to know.'' ``Benefit'' is 
defined as any advantage, preference, privilege or favorable 
consideration a person receives from another person in exchange for 
certain acts or considerations. A benefit may be monetary or non-
monetary. The definition of ``knows or should have known'' will be the 
same as that contained in 7 CFR 1.302(o). Further, this rule does not 
sanction persons for ``fraud, waste or abuse.'' This rule imposes 
sanctions for violations of section 515(h) of the Act and other 
statutory provisions. To the extent that such statutory provision 
includes some elements of fraud, waste and abuse, the prohibited 
conduct will be specified therein.

B. Revisions to Specific Definitions

1. Affiliate
    Comment: A commenter stated that FCIC's definition of ``affiliate'' 
is inconsistent with the Standard Reinsurance Agreement's (SRA) 
definition of ``affiliate.'' The commenter stated that the definition 
should be amended to mirror the SRA's focus on the control of 
management of the book of business.
    Response: While the narrower definition is appropriate for the SRA, 
such a narrow definition is not appropriate for this rule, which is 
intended to determine who a person is for the purposes of this rule. 
Under the definition of ``person'' affiliates are also considered as 
part of the person if the requirements are met. The main reason for 
defining the term ``affiliate'' in this rule is to put everyone on 
notice that the term may be used differently in this rule than it is in 
other rules or agreements. No change has been made.
    Comment: A commenter stated that the definition of ``affiliate'' is 
broad and ambiguous because it uses the term ``same or similar 
management'' when describing a presumably affiliated business entity. 
The commenter suggested that the ambiguity can be cured by using either 
the accepted definition under federal banking and securities law or 
alternatively by substituting the term ``identical or substantially 
identical management'' for ``same or similar management.''
    Response: The definition was obtained from the definition of 
``affiliate'' in USDA's suspension and debarment regulations published 
at 7 CFR part 3017. Since a disqualification has a similar effect to a 
debarment, it was determined that the treatment of affiliates and the 
definition should be the same for both remedial sanctions. No change 
has been made.
2. Participant
    Comment: A commenter stated that the definition of ``participant'' 
was unduly broad in that it contained no materiality or other threshold 
test for determining the extent of benefit that makes a person a 
participant. As written, someone who does not have a substantial 
beneficial interest for purposes of the crop insurance policy could be 
subject to a sanction.
    Response: Any person, regardless of his interest for purposes of 
the crop

[[Page 76871]]

insurance policy, who willfully and intentionally makes a false 
statement or fails to comply with a requirement of FCIC, may be subject 
to sanction. As stated above, such person may have no connection to the 
crop insurance program other than to provide certain information that 
is then provided to FCIC or the insurance provider. If such person 
willfully and intentionally provides false or inaccurate information, 
such person can be subject to the sanctions provided in this rule even 
if they derive no benefit from the crop insurance program. Materiality 
does not require monetary damages. The false information can be 
material if it adversely affects program integrity, including damage to 
the program's reputation. Since the gravity must be considered in 
determining whether to impose a sanction, FCIC has revised the 
provision to include a materiality requirement and added a definition 
of ``material.''
    Comment: A commenter suggested that a materiality test, percent 
interest or monetary level of benefit be used as a threshold for 
defining ``participant.''
    Response: As stated above, materiality does not require monetary 
damages or benefits. The false information can be material if it 
adversely affects program integrity, including damage to its 
reputation. Further, FCIC has revised the provisions to include a 
materiality requirement when the gravity of the violation is taken into 
consideration and defined the term ``material.''
3. Preponderance of the Evidence
    Comment: A commenter stated that intentional, willful conduct and 
fraud are subject to special rules regarding proof in civil litigation. 
Fraud requires ``clear and convincing proof to establish liability.'' 
This is a higher standard than that required under the proposed rule by 
a preponderance of the evidence. Because fraud connotes intentional 
misconduct the party charging that conduct is required to prove it to a 
greater certainty. The commenter stated further that it is improper to 
reduce the burden of proof by the government when alleging fraud. No 
justification has been given that alters longstanding rules applicable 
to civil litigation. Furthermore, intentional and willful acts should 
be defined to make clear that the person knew the falsity of the 
statement when made and intended that FCIC act on the basis of the 
intentional and willful misstatements. Intent and willfulness also must 
be established by clear and convincing evidence.
    Response: Section 515(h) of the Act does not require a showing of 
fraud. The standard is whether a person willfully and intentionally 
provided false or inaccurate information. The standard of proof was 
derived from USDA's suspension and debarment regulations because of the 
similarity of the effects of disqualification and debarment. Further, 
debarment must also show evidence of willfulness and knowingly, which 
is similar to the standards contained in section 515(h) of the Act. The 
causes for debarment need only be established by a preponderance of the 
evidence. In addition, this is not a civil litigation. This is an 
administrative action taken to protect the integrity of the program and 
misuse of taxpayer dollars. Further, this has been the standard of 
proof that has been applied since the application of these sanctions in 
1993. Section 515(h) of the Act does not contain any requirement that 
the person who provides the false information intended for FCIC to rely 
on such information. FCIC does not have to prove fraud. FCIC only needs 
to prove that a person willfully and intentionally provided false or 
inaccurate information or failed to comply with a requirement of FCIC.
    Comment: A commenter stated that the definition of ``preponderance 
of the evidence'' needs to be revised or clarified to clearly state 
that FCIC has the burden of proof to produce evidence to meet its 
preponderance of the evidence.
    Response: FCIC has revised Sec.  400.454(a) to clarify that FCIC 
bears the burden of proving that the person willfully and intentionally 
provided false or inaccurate information or failed to comply with a 
requirement of FCIC.
4. Principal
    Comment: A commenter stated that the definition of ``principal'' 
was broad, and includes persons whom the law does not recognize as a 
principal. In addition, while the concept of ``control'' is defined by 
case law, the concept of ``critical influence'' is not. Theoretically, 
a data processor has ``critical influence'' because the incorrect entry 
of data may have a significant impact on liability. The commenter asked 
whether FCIC contends that such persons are ``principals'' under the 
rule. The commenter also questioned who is a ``key employee'' and what 
are the indicia of a ``key employee.'' The commenter asked who will 
determine whether an employee is a ``key employee''--the insurance 
provider or FCIC?
    Response: The definition of principal has been broadened in this 
rule because insurance providers have routinely delegated many of their 
obligations and responsibilities to persons who would not normally have 
the ability to direct the activities of the business. The definition of 
``principal'' is intended to encompass such persons who may not have 
the title, but who have functional influence or control over some 
activities of the insurance provider. This delegation is not unique to 
the insurance providers. Insureds may also delegate their obligations 
to other persons, such as farm managers. The use of the term ``key 
employee'' is intended to be a catch-all term for employees that have 
primary management or supervisory responsibilities or have the ability 
to direct activities or make decisions regarding the crop insurance 
program. FCIC would initially decide whether an employee is a key 
employee based upon the person's responsibilities in the entity when 
determining whether to file a complaint. However, it would be an 
Administrative Law Judge that will ultimately decide whether the 
employee is subject to sanction under this rule.
    Comment: A commenter said that the definition of ``principal'' was 
broad and ambiguous. This problem is magnified by the use of ``key 
employee'' (an undefined term with no commonly accepted legal 
understanding) and ``critical influence on or substantive control over 
the activities of the entity'' (also undefined and not susceptible to 
common legal interpretations from other bodies of law). The commenter 
suggested that FCIC could cure the ambiguity to defining ``principal'' 
by citing position names commonly used in business and limiting the 
scope of the definition to only certain functions with the 
organization. The commenter suggested the following definition for 
``principal'': ``A person who is an officer, director, owner or partner 
within an entity with primary management or supervisory 
responsibilities over the entity's Federal crop insurance activities.''
    Response: FCIC is attempting to avoid being locked into titles 
because they do not fit all the business entities that can be involved 
directly or indirectly with the crop insurance program. This is why the 
term ``key employee'' has been added. This definition is trying to 
identify those persons who perform or exert some type of management or 
control or decision making over at least some activities related to the 
crop insurance program. Those are the persons who will be treated as 
principals. Given the practice of delegation that occurs in the 
insurance and farming industries, the definition would be too limiting 
to name the specific titles.

[[Page 76872]]

5. Requirement of FCIC
    Comment: Several commenters stated that the definition of 
``requirement of FCIC'' is overly board, ambiguous, and vague. As 
written, the rule could include informal communications, such as e-
mails, from RMA personnel writing without actual approval by 
supervisory or managerial personnel with the agency. The definition 
does not define the form in which the written communication must take. 
Thus, a requirement of FCIC could take the form of any writing, 
including an e-mail. The commenter asked what types of communications 
are included in ``other written communications.''
    Response: FCIC has revised the definition to specify that 
requirements will be contained in formal communications such as 
regulations, procedures, policy provisions, reinsurance agreements, 
memorandums, bulletins, handbooks, manuals, findings, directives or 
letters signed or issued by persons who have been provided the 
authority to issue such communications on behalf of FCIC. The 
definition is also revised to clarify that e-mails are not formal 
communications although they can be used to transmit formal 
communications.
    Comment: Several commenters stated that the definition of 
``Requirement of FCIC'' does not specify from whom within the FCIC the 
written communication may come. The written communication could come 
from any FCIC employee, regardless of status or level, to anyone 
associated with the insurance provider.
    Response: As stated above, the provision as been revised to specify 
that written communications that will qualify as a ``requirement of 
FCIC'' will be originated by a FCIC employee that has been delegated 
the authority to issue such communications on behalf of FCIC. The 
current delegations are found at http://www.rma.usda.gov/news/managers/2000/PDF/mgr-00-016-1.pdf, http://www.rma.usda.gov/news/managers/2000/PDF/mgr-00-016-2.pdf, http://www.rma.usda.gov/news/managers/2000/PDF/mgr-00-016-3.pdf, and these delegations include documents that would 
qualify as ``requirements of FCIC.'' To the extent that other persons 
may also receive delegated authority, other bulletins containing such 
delegation will be issued.
    Comment: A commenter stated that no ``other written communication 
from FCIC'' should qualify as a ``Requirement of FCIC'' unless FCIC has 
sent the communication to the insurance provider's designated 
recipients. The commenter pointed out that the SRA, in Appendix II, 
paragraph 6, requires each insurance provider to designate persons with 
authority to receive written communications from FCIC.
    Response: To the extent that the ``requirement of FCIC'' is in the 
form of letters and other individual communications, such documents 
will be provided to the designated recipients of the insurance 
providers. However, documents such as regulations, procedures, 
bulletins, reinsurance agreements, etc. may also be considered 
requirements of FCIC under certain circumstances. Such documents will 
continue to be released in the customary manner.
    Comment: A commenter suggested the phrase ``other written 
communications from FCIC'' be removed or at least restricted to require 
that the FCIC official sending the ``other written communication'' have 
express authority to send the communication and require that the 
communication be sent to the insurance provider's designee for the 
specifically stated type of communication.
    Response: As stated above, FCIC has previously delegated persons to 
provide written communication on behalf of FCIC. FCIC will issue other 
bulletins if other persons will be delegated this authority. Further, 
as stated above, to the extent that such communication is a letter or 
other such individual communication, such communication will be sent to 
the insurance provider's designee. However, all other communications 
will be released in the customary manner.
    Comment: One commenter questioned whether the Common Crop Insurance 
Policy falls within the definition of requirement of FCIC. The 
commenter asked if the Common Crop Insurance Policy is a requirement of 
FCIC only for agents, adjusters, and producers because the SRA's remedy 
applies only to insurance providers. This same conundrum exists for 
various handbooks and manuals.
    Response: As stated in the rule, documents such as the Common Crop 
Insurance Policy are considered a requirement of FCIC unless such 
documents contain their own sanctions for violations. Further, even if 
such documents contain sanctions, they may still be considered a 
requirement of FCIC if there are multiple violations of the same 
provision or multiple violations of different provisions. FCIC has 
clarified that the remedial sanction is in addition to any other remedy 
contained in such document. The requirement of FCIC will only apply the 
persons to whom the document applies. For example, all regulations, 
including the Common Crop Insurance Policy, are applicable to insurance 
providers, agents, loss adjusters, and producers. However, the SRA is 
only applicable to insurance providers. The question will be whether 
the person is legally obligated to comply with the document through the 
force of law or contract.
    Comment: One commenter asked: (1) Who is the arbiter of whether the 
``breach rises to the level where remedial action is appropriate;'' (2) 
what standard is used to make a determination that a breach occurred 
under ``requirement of FCIC;'' and (3) whether materiality of the 
breach or injury to FCIC is a consideration for ``requirement of 
FCIC.''
    Response: FCIC will initially determine whether a breach rises to 
the level where remedial action should be taken when it issues the 
complaint. However, persons have the ability to contest any proposed 
sanction before an Administrative Law Judge, who will be the ultimate 
arbiter. Further, as stated above, the rule states the standards 
applicable. For a document that has its own remedy for a violation, 
such document will only be considered a requirement of FCIC when there 
are multiple violations of the same or different provisions. If the 
document is directed to a specific person or group of persons, or does 
not contain a remedy for a violation, and requires such person or 
persons to take or cease from taking a specific action, the document is 
considered a requirement of FCIC. As stated above, FCIC has revised the 
provisions to include materiality, which applies to both false or 
inaccurate statements and failing to comply with a requirement of FCIC. 
However, as stated above materiality does not require monetary damages. 
The false information or the failure to comply can be material if it 
adversely affects program integrity, including damage to the crop 
insurance program's reputation.
    Comment: One commenter stated that definition of ``requirement of 
FCIC'' states that a breach will not be considered a requirement of 
FCIC unless the breach rises to the level where remedial action is 
appropriate. The proposed rule imposes a subjective standard of 
reviewing conduct. The commenter asked at what level does conduct rise 
to ``the level where remedial action is appropriate.''
    Response: The rule makes it clear that when the communication has 
its own remedy there must be multiple violations before the conduct 
arises to the level where remedial action, in addition to the remedy 
contained in the

[[Page 76873]]

communication, is necessary. With respect to other communications, 
there is a subjective element. However, as stated above, the gravity of 
the violation must be taken into consideration when determining whether 
to impose a sanction, which would include whether conduct arises to the 
level where remedial action is appropriate. In addition, the ultimate 
decision maker regarding whether the conduct arises to the level where 
remedial action is necessary will be the Administrative Law Judge. For 
the purpose of clarity, FCIC has used the term ``violation'' in place 
of ``breach'' because breach may mistakenly imply that the definition 
only applies to contracts or agreements when the definition clearly 
refers to other types of documents.
    Comment: A few commenters stated that the definition of 
``requirement of FCIC'' includes not only regulations and policy 
provision, but also procedures and other written communications from 
FCIC. The proposed rule does not address the potential conflicting 
nature of these requirements. It also imposes the same sanctions for 
violating non-binding informal procedures and communications as for 
violating binding rules and regulations. Neither the law nor the 
Administrative Procedures Act gives the same type of formality, 
equality or deference to these types of agency decisions.
    Response: To the extent that there is a conflict between the 
regulations, policy provisions, and procedures, the regulations resolve 
such conflict in the order of priority. To the extent that other 
written communications may be in conflict, any provision that has the 
force of law, such as statutory or regulatory provisions, would take 
precedence. Further, neither the Act nor the Administrative Procedures 
Act precludes the use of any particular form of communication to impose 
requirements on a person. If FCIC has the authority to require that 
certain action be done or ceased, the Act provides the authority to 
provide sanctions for non-compliance. The nature of the crop insurance 
program makes it impractical to put all requirements in regulations or 
reinsurance agreements. Circumstances may arise during the year that 
requires immediate action and FCIC must have the means to ensure such 
action is taken. In determining whether to impose a sanction, FCIC must 
look at the nature of the violation. If the person fails to take a 
specific action required by FCIC or FCIC mandates that it cease a 
specific action, it does not matter the form of the communication. The 
person is required to comply and failure to comply can result in the 
imposition of sanctions.
    Comment: One commenter is concerned that a person without access to 
FCIC's regulations, policies, procedures or other written 
communications and those who may have misinterpreted those regulations, 
policies and procedures, may be subject to sanctions. The commenter 
stated that the definition should include regulations, policies, 
procedures or other written communications the person knew or should 
have known or had received a specific notice of alleged violation.
    Response: As stated above, sanctions can only be imposed for a 
violation of requirement of FCIC if such requirement is applicable to 
the person. If applicable, the person should have notice of the 
requirement. For example, bulletins are not applicable to producers 
unless such bulletin is provided to the producer or directs the agent 
or insurance provider to provide such bulletin to the producer. In 
addition, the gravity of the violation will be taken into consideration 
before imposing any sanction. No change has been made.
    Comment: One commenter stated that, as proposed, the FCIC has 
virtually unlimited discretion in determining what constitutes a 
``requirement.'' Insurance providers are often forced to make on the 
spot interpretations of ambiguous regulations without any guidance from 
FCIC, only to have FCIC later determine that the insurance provider's 
interpretation was incorrect. Allowing FCIC to go one step further and 
disqualify an insurance provider because it disagrees with the 
insurance provider's interpretation of an ambiguous ``requirement,'' is 
unreasonable, unworkable, and unfair.
    Response: FCIC does not disqualify an insurance provider because it 
disagrees with the FCIC. If FCIC determines that an insurance provider 
has made an incorrect interpretation, it would notify the insurance 
provider of its misinterpretation and request that any actions taken 
based on the misinterpretation be corrected. Sanction would only be 
considered if the insurance provider does not comply with FCIC's 
request. Further, if the insurance provider believes that FCIC's 
interpretation is incorrect or that it does not have the authority to 
require the specific action, it can always appeal FCIC's action to the 
Civilian Board of Contract Appeals. No sanction could be imposed during 
this appeal process.
6. Violation
    Comment: One commenter stated that the definition of ``violation'' 
leaves far too much room for interpretation as to what constitutes a 
single violation and what results in multiple violations. For example, 
assume that a farmer submits a single claim under his policy, but that 
the claim involves three separate units of insurance. The farmer 
submits three false production worksheets in connection with the one 
claim. The commenter asked whether the farmer committed one violation 
or three violations.
    Response: To be subject to a sanction, the person must have 
willfully and intentionally provided false or inaccurate information. 
Each false or inaccurate piece of information would constitute a 
violation. Therefore, if in the acreage report the producer falsely 
reports the number of acres in the unit and the share, this would be 
two violations. In the example given, the farmer has committed four 
violations. The proposed rule defines violation as ``each act or 
omission'' made by a person that satisfies all required elements for a 
sanction is a violation. The farmer signed his name on three separate 
production worksheets and one claim, four times he ``certified'' the 
information provided, to the best of his knowledge to be true and 
complete; when in fact, he knew the information was false.
7. Willful and Intentional
    Comment: One commenter stated that ``willful and intentional'' acts 
should be defined to make clear that the person knew the falsity of the 
statement when made and intended that FCIC act on that misstatement.
    Response: A ``willful and intentional'' act is providing 
information by a person who had ``knowledge that the statement was 
false or inaccurate at the time.'' The requirement that the person 
``intended that FCIC act on that misstatement'' is an element of fraud. 
However, under section 515(h) of the Act, to impose a sanction, the 
person only needs to have willfully and intentionally provided false or 
inaccurate information. The term ``fraud'' is not found in section 
515(h) of the Act and if Congress wanted to require reliance by FCIC as 
an element, it could have so required. No change has been made.
    Comment: One commenter stated that the definition ``Willful and 
intentional'' is incomplete and inaccurate as a standard of proof for 
the conduct under the proposed rule. Intent and willfulness must be 
established by clear and convincing evidence.
    Response: The general standard of proof in administrative cases is 
preponderance of the evidence. This is consistent with USDA's 
suspension and

[[Page 76874]]

debarment regulations, which serve a similar purpose. Further, this has 
been the standard of proof that has been applied since the application 
of these sanctions in 1993. No change has been made.
    Comment: One commenter stated that FCIC should clearly require that 
scienter must be proven with respect to willful and intentional 
statements prosecuted under the rule to ensure that prosecutions are 
confined to fraudulent statements or acts or omissions, rather than 
non-malicious acts or omissions.
    Response: In the definition of ``willful and intentional,'' FCIC 
has included the requirement that the person know that the statement 
was false or inaccurate at the time the statement was made or the 
person know that the act or omission was not in compliance with a 
requirement of FCIC at the time the act or omission occurred. 
Therefore, sanctions will not be imposed for innocent mistakes. 
However, maliciousness is not a standard required by the Act. FCIC has 
structured these provisions to fully comply with the requirements 
imposed in the Act. No change has been made.
    Comment: One commenter stated that the definition of ``willful and 
intentional'' deviates from the common law meaning of those terms, and 
specifically nullifies a showing of malicious intent, an element of 
common law fraud. The commenter further states that fraud is the very 
target of 7 U.S.C. 1515(h) and that FCIC may lack the authority to 
expand the definition of willful and intentional to include conduct 
outside the common understanding of fraud and to impute knowledge from 
one individual to another.
    Response: Section 515(h) only requires that the person willfully 
and intentionally provide a false or inaccurate statement or fail to 
comply with a requirement of FCIC before a sanction can be imposed. 
Section 515(h) does not use the term ``fraud'' and that term's other 
connotations. FCIC has studiously attempted to stay within the 
requirements of the Act. To that end, FCIC has used the common 
definitions and common law to determine the meaning of ``willful and 
intentional.'' This rule contained the same meaning as has been given 
the term since FCIC began doing disqualifications after the enactment 
of the Federal Crop Insurance Reform Act of 1994. With respect to the 
imputation of knowledge, FCIC has used the Department's debarment 
regulations as guidance because the burdens and consequences are 
similar.
    Comment: One commenter stated that for the definition of ``willful 
and intentional'' FCIC does not specifically define the words 
separately, and FCIC does not state the source of this definition. FCIC 
also excludes the showing of malicious intent as unnecessary. FCIC 
includes ``the failure to correct the false or inaccurate statement 
when its nature becomes known to the person who made it'' and includes 
acts of omission. These additions force agents and agencies to review 
information for past years, or they may be subject to sanctions.
    Response: Defining the words separately would not change the 
meaning or bring more clarity. The terms will be given their common 
meaning. The dictionary defines ``willful'' as ``intentional, or 
knowing, or voluntary.'' ``Intentional'' is defined as ``done 
purposely.'' FCIC has also looked to the body of established law 
regarding the meaning of the terms for the purposes of this rule. There 
is no requirement in the Act for maliciousness intent. The Act only 
requires that a person willfully or intentionally provide false or 
inaccurate information. Therefore, requiring a person to know the 
information was false or misleading and electing to provide it anyways 
satisfies the common meaning of the terms. Further, agents are not 
required to review information for past years. Agents will only be 
subject to sanctions if they knew the information was false or 
inaccurate at the time it was provided or if they discover it later and 
they fail to do anything about it. No change has been made.
    Comment: One commenter stated that the definition of ``Willful and 
intentional'' should be defined to make clear that the actor knew the 
falsity of the statement when made and intended that FCIC act on the 
basis of the intentional misstatements.
    Response: As stated above, there is no requirement that the person 
intended FCIC to act on the false information in section 515(h) of the 
Act. To be subject to sanctions, the person only needs to have 
willfully and intentionally provided false or inaccurate information to 
FCIC or an approved insurance provider. Reliance of the misstatement is 
an element of fraud, which as stated above, is a term that is not found 
in section 515(h) of the Act.
    Comment: One commenter stated that FCIC must establish a clear 
indication of how intent will be established with respect to 
demonstrating whether a statement, act or omission is willful and 
intentional. A false or inaccurate statement or a noncompliant act or 
omission alone does not rise to willful and intentional and additional 
evidence that clearly establishes that a person had sufficient 
knowledge is necessary before imposing sanctions.
    Response: The definition of ``willful and intentional'' makes it 
clear that the person must have knowledge of the falseness or 
inaccuracy of the information. Unless FCIC can establish the person has 
such knowledge no sanction under section 515(h) of the Act can be 
imposed. Further, FCIC is not alone in making these decisions. Any 
person subject to a proposed sanction has a right to contest the 
sanction before an Administrative Law Judge. The Administrative Law 
Judge will determine whether FCIC has met its burden before any 
sanction is imposed.
    Comment: One commenter stated that with no showing of intent 
coupled with the provision that sanctions may be imposed regardless of 
whether FCIC or the insurance provider sustained monetary losses places 
all parties in jeopardy of severe punishment for seemingly innocuous 
mistakes that may have caused little to no harm.
    Response: Sanctions cannot be imposed for innocuous mistakes. There 
must be evidence of willfulness and intent. Further, the fact that no 
monetary losses may occur does not excuse the improper conduct. All 
false or inaccurate statements have the capacity to adversely affect 
program integrity.
    Comment: One commenter stated that while the definition may be 
clear in regards to willful, it is not clear from the definition that 
there is actually a requirement of intention at all. The commenter 
suggested that the definition should include knowledge of the 
inaccuracy and that an intent, malicious or otherwise be associated 
with the inaccuracy. The definition should be confined to ``material'' 
misrepresentations or omissions.
    Response: ``Intentional'' is defined as ``done purposely.'' FCIC's 
definition of ``willful and intentional'' is consistent with that 
definition in that it requires the person to have provided the 
information to FCIC or an approved insurance provider even though the 
person had knowledge that the information was false or inaccurate at 
the time that the statement was made and still elected to provide the 
information to FCIC or the approved insurance provider. However, as 
stated above materiality has been added to the rule but it does not 
require monetary damages.

[[Page 76875]]

Section 400.454 Disqualification and Civil Fines

A. In General

    Comment: One commenter stated that ARPA required that each policy 
or plan of insurance to provide notice of the sanctions that could be 
imposed under ARPA for willfully and intentionally providing false or 
inaccurate information to FCIC or failing to comply with a requirement 
of FCIC. FCIC has failed to comply with 1515(h)(5).
    Response: Section 27 of the Common Crop Insurance Policy Basic 
Provisions (Basic Provisions) (7 CFR 457.8) states that if the 
producer, or someone assisting the producer, has intentionally 
concealed or misrepresented a material fact, the producer could be 
subject to the remedial sanctions in 7 CFR part 400, subpart R, which 
includes disqualification and civil fines. However, FCIC has revised 
this rule to include more specific language in section 27 of the Basic 
Provisions and added a new section 22 to the Group Risk Plan Common 
Policy (7 CFR 407.9) (GRP policy).

B. Section 400.454(a)

    Comment: One commenter has concerns that FCIC is not providing 
producers with the appropriate notice of sanctions as stated under 
section 515(h)(5). The commenter stated that section 454(a) lacks the 
required notice to policyholders. Specifically, the commenter stated 
that the proposed language in section 454(a) does not appear to provide 
producers the required notice of the sanctions available under 7 U.S.C. 
1515(h)(3) as required by 7 U.S.C. 1515(h)(5). That in its present form 
section 454(a) does not notify producers that they can be disqualified 
for up to five years from specific programs or that the potential fine 
could be greater than $10,000.
    Response: It is not the specific intent of Sec.  400.454(a) to 
provide producers notice of sanctions available under section 515(h)(3) 
of the Act. It is intended to provide all persons of the possible 
consequences of willfully and intentionally provided false or 
inaccurate information or willfully and intentionally failing to comply 
with a requirement of FCIC. As stated above, FCIC has revised the Basic 
Provisions and the GRP policy to ensure that producers receive the 
required notice.
    Comment: Several commenters stated that the decision to initiate 
administrative sanctions should not rest solely with the FCIC Manager, 
but that it should require a determination by the FCIC Board of 
Directors.
    Response: Section 515(h) of the Act confers the authority to impose 
sanctions on the Secretary, who has subsequently authorized the Manager 
of FCIC to initiate the process when the rule was originally 
promulgated in 1993 (58 FR 53110). Since this process has been in place 
since 1993 and there have not been any allegations that the Manager has 
abused this authority, the Secretary has elected to allow the authority 
to initiate sanctions to remain with the Manager of FCIC. In addition, 
although the Manager initiates the process, it is the Administrative 
Law Judge that ultimately decides whether there is sufficient evidence 
to impose a sanction under section 515(h) of the Act.
    Comment: Several commenters stated that FCIC uses an inappropriate 
standard of proof, preponderance of the evidence, for the imposition of 
any penalty. One commenter stated that the standard of guilt should 
rest with the party alleging such violation. Instead of requiring a 
mere `preponderance of evidence' the standard of proof should be clear 
and convincing evidence. There is no justification for holding the crop 
insurance industry to a lower standard of guilt.
    Response: As stated above, this is the same standard applied by the 
Department for debarments. Because the effects are similar and both can 
require willful and intentional conduct, it is appropriate to apply 
that standard to sanctions under this rule. Further, this has been the 
standard of proof that has been applied since the application of these 
sanctions in 1993. No change has been made.
    Comment: Several commenters stated that the proposed rule imposes a 
low evidentiary threshold for the imposition of sanctions. The burden 
of proof should be clear and convincing evidence as opposed to a 
preponderance of the evidence. The rule only authorizes sanctions for 
willful and intentional conduct. Such a standard connotes the elements 
of fraud. In almost every instance, liability for fraud cannot be 
predicated on a mere preponderance of the evidence; rather, a finding 
based on at least clear and convincing evidence is required. Therefore, 
the draft regulations should be amended to reflect a burden of proof of 
clear and convincing evidence. Commenters stated that FCIC may lack the 
authority to adopt a burden of proof lower than the clear and 
convincing standard of proof in fraud cases. One commenter stated that 
to establish a prima facie claim of fraud, the party alleging it must 
prove by clear and convincing evidence that there was a false 
representation or concealment of a material fact, calculated with the 
intent to deceive. One commenter stated that the rule potentially 
expands the liability of actions to a degree not enforceable in civil 
litigation.
    Response: Section 515(h) of the Act does not require a finding of 
fraud. Sanctions can be imposed for willfully and intentionally 
providing false or inaccurate information. Further, as stated above, 
this is the same standard applied by the Department for debarments. 
Because the effects are similar and both can require willful and 
intentional conduct, it is appropriate to apply that standard to 
sanctions under this rule. Further, this has been the standard of proof 
that has been applied since the application of these sanctions in 1993. 
No change has been made.

C. Section 400.454(b)

    Comment: One commenter stated FCIC needs to provide a clear 
indication of how intent will be established as to whether a statement, 
act or omission is willful and intentional. Further, scienter must also 
be established to a statement, act or omission that is willful and 
intentional.
    Response: As stated above, FCIC has defined ``willful and 
intentional'' to be consistent with the common definition of these 
terms and case law. Scienter is not a specific requirement. No change 
has been made.
    Comment: Several commenters stated that the proposed rule must be 
confined to material misrepresentation or omissions that cause 
financial loss. One commenter stated that it was the intent of 
Congress. A commenter stated that FCIC should confine the proposed rule 
to statements, acts or omissions that cause injury or damages, 
consistent with general principles of law relative to fraud.
    Response: FCIC has revised the provisions to require consideration 
of materiality when considering whether to impose a sanction and 
defined the term ``material.'' However, as stated above materiality 
does not require monetary damages. The false information can be 
material if it adversely affects program integrity, including damage to 
the crop insurance program's reputation or providing or potentially 
providing benefits that would otherwise not be available. Further, as 
stated above, fraud is not required to be proven before a sanction can 
be imposed. There only needs to be a finding that a person willfully 
and intentionally provided false or inaccurate information or failed to 
comply with a requirement of FCIC.

[[Page 76876]]

D. Section 400.454(c)

    Comment: One commenter stated that ``gravity'' is subjective and 
vague. It did not tell the public the standard to be applied by FCIC 
when measuring the severity of a violation. The commenter suggested 
that FCIC adopt the list of factors under 7 CFR 1.335(b) or develop its 
own list of mitigating factors to be applied when considering the 
gravity of a violation.
    Response: FCIC has reviewed the list of factors used in the 
assessment of sanctions in 7 CFR 1.335(b), and has modified the list to 
be more applicable to the crop insurance program and included it in 
Sec.  400.454(c).
    Comment: One commenter has concerns that cumulative penalties could 
exceed the gravity of the violation. The commenter urged FCIC to 
establish appropriate penalties to violations that are always 
commensurate to the gravity of such violations.
    Response: As stated above, FCIC has adopted factors, with 
modification, used by Department in assessing sanctions. However, 
Congress specifically revised section 515(h) of the Act to allow the 
imposition of a separate sanction for each violation. The gravity of 
each violation will be taken into consideration when imposing a 
sanction.
    Comment: A commenter stated that increased penalties demand an 
equally elevated system of judgment process and identification of 
degree. The rule's definition of degree of offense and penalty extends 
to others who may be oblivious to the error of intention to submit 
false information. For example, the agent who forwards an actual 
production history (APH) which was completed and signed by an insured 
can be totally unaware of erroneous information provided by that 
insured, unless the submission is blatantly different from other 
producers in the area. Cumulative penalties could result in 
disproportionate fines in relation to the offense. Therefore, a minor 
infraction could have a major impact.
    Response: An agent that transmits an APH that is false can only be 
sanctioned if the agent knew or should have known the information was 
false and transmitted it anyway. If the agent had no way to know the 
information was false, no sanction can be applied. However, the 
producer that provided the false APH may be sanctioned for providing 
the false information to the agent. In such case, the gravity of the 
violation will be considered based on the factors FCIC has added to the 
rule to ensure the sanction is commensurate with the violation. 
Further, FCIC will consider each person's conduct as it pertains to the 
provision of false or inaccurate information. Therefore, there should 
not be the possibility of disproportionate sanctions.
    Comment: A few commenters stated that the rule should exclude 
penalties and suspensions for conduct that is already addressed in the 
SRA.
    Response: There is nothing in the SRA or other contracts that 
specifically involves willfully and intentionally providing false or 
inaccurate information or failing to comply with a requirement of FCIC. 
Further, there may be circumstances where the improper conduct under 
the SRA is so egregious that the imposition of sanctions may be 
appropriate. The rule explains those situations. In such cases, the 
liquidated damage provisions may be inadequate given the gravity of the 
violation. Further, suspension or termination may not be viable options 
and the imposition of a civil fine may be more appropriate. However, 
with respect to any breach of the SRA, FCIC first will look to the 
remedies in the SRA. Because remedies are available under the SRA, 
sanctions can only be imposed if there are multiple violations of the 
same or different provisions.
    Comment: Several commenters state that the proposed rule's 
cumulative penalties violate the excessive fines provision of the 
Eighth Amendment of the U.S. Constitution. Since its penalties would be 
cumulative, the proposed rule could result in disproportionate fines. 
Cumulative penalties are not allowed under the Act, in addition to 
those found in 7 U.S.C. 1515(h)(3). The commenters stated that the rule 
should also be clarified to make it clear that the penalties and fines 
are not cumulative and that if the FCIC chooses to enforce any existing 
contract-based or regulatory remedies, the rule should be expressly 
inapplicable. A commenter stated that while the sanctions in 7 U.S.C. 
1515(h)(3) potentially are cumulative, there is no statutory basis for 
punishing the same conduct under other regulations or agreements. 
Accordingly, any fair reading of the FCIA precludes cumulative 
penalties in addition to those found at 7 U.S.C. 1515(h)(3). A 
commenter stated that FCIC should not treat the sanctions as cumulative 
relative to other sanctions, as this is not anywhere provided for in 
the plain language or legislative history of the statute.
    Response: Section 515(h) of the Act expressly authorizes a separate 
civil fine for each violation. Therefore, this rule does not contain 
cumulative civil fines for the same conduct. It would not make sense to 
impose the same civil fine on a person who committed one violation 
compared to one who committed two or more violations. When determining 
the civil fine to apply for each violation, FCIC is to take into 
consideration the gravity of that violation. Therefore, this allows the 
sanctions to be proportional to the conduct. However, there is nothing 
in the Act that would preclude FCIC from enforcing section 515(h) of 
the Act along with any contractual remedies. When section 515(h) of the 
Act was enacted, Congress was aware that many contracts and agreements 
had remedies for a breach. If it wanted the sanctions under section 
515(h) of the Act to be the sole remedy for the conduct it could have 
so required, but it did not do so. The application of any other remedy 
will be taken into consideration when assessing the sanction to be 
imposed under this rule so that the result is not disproportionate. 
Further, this is most likely to arise with respect to the willful and 
intentional failure to follow a requirement of FCIC, because there is 
no mention of willfully and intentionally providing false or inaccurate 
information in the contract or agreement. As stated above, there are 
situations when the conduct is so egregious, such as with multiple 
violations, that the imposition of sanctions is appropriate under this 
rule in addition to the remedies available in the contract or 
agreement. No change has been made in response to this comment.
    Comment: One commenter states that the rule states that it is 
remedial in nature. However, the rule also states that fines and 
disqualifications are in addition to any other actions taken by FCIC or 
others under the terms of the crop insurance policies, other statutes 
and regulations. Recently the U.S. Supreme Court disregarded its own 
long-standing position on the remedial nature of the federal False 
Claims Act and labeled its treble damage provision as ``punitive.'' 
Adding additional sanctions on top of those recoverable under the False 
Claims Act, and other statutes will undoubtedly be punitive, and 
subject the rule to interpretation and construction consistent with its 
punitive aims.
    Response: The provisions stating that the imposition of sanctions 
under this rule is in addition to any other sanctions provided in the 
agreement or contract is not new. It was included in Sec.  400.451(c). 
Further, it is not FCIC's decision regarding whether other sanctions 
are imposed. FCIC can only enforce the sanctions available under the 
contract or agreement and section 515(h) of the Act.

[[Page 76877]]

FCIC will take into consideration any other sanctions that may have 
been previously imposed for the conduct to ensure that the sanctions 
are not disproportionate to the conduct. To the extent that FCIC 
imposes sanctions under section 515(h) of the Act, in addition to the 
remedies available under the contract or agreement, the person is able 
to challenge such imposition before the Administrative Law Judge.
    Comment: One commenter stated that because the definition of 
willful and intentional is broad and sanctions can be applied without 
resulting monetary damages, it appears that cumulative penalties could 
easily result from simple mistakes that resulted in little to no 
damages. Thus, cumulative penalties could be unconstitutional as it may 
constitute excessive fines under the Eighth Amendment.
    Response: Cumulative penalties cannot be applied for simple 
mistakes. Sanctions under section 515(h) of the Act can only be applied 
for willfully and intentionally providing false or inaccurate 
information or failing to comply with a requirement of FCIC. Further, 
materiality will be considered when determining whether to impose a 
sanction and a consideration of the gravity will also be done to 
determine the amount of sanction to apply. This should preclude the 
imposition of sanctions that is disproportionate to the conduct.
    Comment: Two commenters stated that the $100,000 threshold in Sec.  
400.454(c)(2) may be appropriate for producers, agents, adjusters, or 
other program participants, but it is too low to impose on insurance 
providers. A $100,000 indemnity could represent only a few hundred 
thousandths of the total indemnities paid by insurance provider. A 
commenter stated that the proposed penalty is too harsh. Absent any 
intention on the part of Congress to impose such draconian penalties, 
the proposed regulations cannot stand. A commenter suggested that 
$500,000 may be a more appropriate benchmark for insurance providers.
    Response: The $100,000 threshold in the aggregate may be low given 
the amount of indemnities each insurance provider pays out each year. 
However, on an individual basis, a $100,000 indemnity is a significant 
amount and the consequences are appropriate, especially given that 
insurance providers are required to review all claims in excess of 
$100,000 and annually report the results. The commenter is correct that 
in the case of multiple violations, a $500,000 threshold is more 
appropriate.
    Comment: One commenter stated that the threshold amount for the 
imposition of maximum penalties is low and has no rational basis, 
especially when applied to an insurance provider. Without raising the 
threshold for imposing the maximum disqualification term or fine, the 
FCIC could run two serious risks. First, it easily could be imposing 
civil fines in amounts disproportionate to actual losses and will thus 
be excessive under the Eighth Amendment of the Constitution. Second, 
program disqualification for an insurance provider which overpays 
losses based on such a low threshold is disproportionate that this 
remedy, too, would violate the Eighth Amendment.
    Response: The civil fine is no more than the amount of any 
pecuniary gain resulting from the improper conduct for which such 
sanction is sought or $10,000. The $10,000 civil fine is reasonably 
related to the amount of time and resources required to investigate 
whether false or inaccurate information was provided to FCIC or the 
insurance provider and whether such information was provided willfully 
and intentionally. The Supreme Court has held that civil fines 
reasonably related to the cost of investigation do not violate the 
Eighth Amendment. FCIC is unsure of the argument that ``program 
disqualification for an insurance provider which overpays losses based 
on such a low threshold is disproportionate that this remedy, too, 
would violate the Eighth Amendment.'' The Supreme Court has held that 
occupational debarments, even permanent ones, are traditionally not 
viewed as punishments. Therefore, it is difficult to see how an 
occupational disqualification for a limited term would be ``cruel and 
usual.'' Further, while FCIC has added a materiality requirement, it is 
not dependent on monetary damages. Further, these thresholds are 
related to the maximum sanctions that can be imposed. Based on the 
gravity of the violation, amounts smaller than the maximum may be 
appropriate. No change is made in response to this comment.
    Comment: One commenter stated the monetary threshold in Sec.  
400.454(c)(2)(ii) (redesignated as 400.454(c)(3)(ii)) is less 
defensible when one recognizes that it is not tied to a single crop 
year's overpayments. Hypothetically, disqualification could occur based 
on more than $100,000 in errors over multiple crop years. An insurance 
provider could be barred from the program for errors amounting to less 
than 0.009 percent of indemnities paid. FCIC's approach violates the 
Eighth Amendment as applied to insurance providers.
    Response: As stated above, FCIC has left the single violation at 
$100,000 but increased the threshold for multiple violations to 
$500,000 for the imposition of the maximum sanction against insurance 
providers. The commenter is correct that since insurance providers deal 
with much larger amounts of claims, the threshold should be higher for 
the imposition of the maximum sanction. However, as stated above, 
monetary damages are not required as a condition of imposing a sanction 
under this rule. Sanctions can be imposed for any willful and 
intentional providing of false or inaccurate information or willful and 
intentional failure to comply with a requirement of FCIC. This means 
that under the Act, a single willful and intentional providing of false 
or inaccurate information by an insurance provider can subject it to 
disqualification of a period up to one year. Although not required, 
FCIC has added a materiality requirement but it is still not 
conditioned on whether there is a monetary loss.
    Comment: One commenter stated that the proposed rule states a 
single `violation' can be the basis for the imposition of the maximum 
penalty if the violation results in an overpayment of more than 
$100,000. This $100,000 threshold is immaterial and statistically 
insignificant with regard to insurance providers.
    Response: A single violation of $100,000 is not statistically 
insignificant. The average claim paid over the last three crop years is 
less than $5,300. Further, approved insurance providers have an 
obligation to verify all claims in excess of $100,000. Therefore, there 
is a heightened duty with respect to these policies. As a result, FCIC 
has not increased the single violation threshold. However, as stated 
above, FCIC has increased the multiple violation threshold for 
insurance providers to $500,000.
    Comment: Several commenters stated that the parameters proposed for 
the maximum penalties under Sec.  400.454(c)(2) (redesignated as 
400.454(c)(3)) were too broadly worded. The commenter asked what 
constitutes ``multiple'' violations. If a single claim involves the 
submission of five fraudulent claims for indemnity, a commenter asked 
whether the participant has committed multiple violations.
    Response: Multiple violations are the number of each willful and 
intentional false or inaccurate statement and each incident of failing 
to comply with a

[[Page 76878]]

requirement of FCIC. One false or inaccurate statement or one incidence 
of failing to comply with a requirement of FCIC is a single violation. 
More than one false or inaccurate statement, even if there is only one 
claim involved, or more than one incidence of failing to comply with a 
requirement of FCIC constitutes multiple violations. In the example 
given, each fraudulent claim for indemnity counts as a separate 
violation so that five fraudulent claims would constitute multiple 
violations.
    Comment: One commenter asked if the multiple violations all have to 
be of the same nature, or whether they can be completely unrelated 
violations.
    Response: Multiple violations do not all have to be of the same 
nature. Multiple violations may be completely unrelated. An example of 
multiple violations of the same nature may be an insured who falsely 
certified three separate production worksheets that the production was 
less than the guarantee. An example of multiple unrelated violations 
may be when a producer falsely reports acreage on an acreage report and 
then later falsely reports production for the unit and claims a loss.
    Comment: One commenter asked how many years does ``several crop 
years'' entail.
    Response: ``Several crop years'' is commonly defined as a number of 
more than two or three, but not many. ``Many'' is commonly defined as a 
large number to infinity. Use of the term ``several'' means that if the 
improper conduct occurred in more than three crop years, the maximum 
sanction can be imposed.
    Comment: One commenter asked under Sec.  400.454(c)(2) 
(redesignated as 400.454(c)(3)), how many years back can FCIC look to 
violations ``over several crop years.''
    Response: The Act does not limit the number of years RMA can look 
at to discover fraud, waste or abuse.
    Comment: One commenter stated that under the proposed rule one 
error, immaterial or not, which does not arise to negligence much less 
fraud, can be mistakenly repeated numerous times. The maximum penalty 
would appear to apply in the case of multiple violations without 
materiality or damages.
    Response: Sanctions can only be imposed for proven willful and 
intentional acts that monetarily or non-monetarily harm the program. If 
the person knows that he or she is committing an error and continues to 
do so, then this would be willful and intentional conduct that could 
lead to the imposition of sanctions. In addition, as stated above, FCIC 
has added a provision regarding materiality although it does not 
require monetary damages.
    Comment: One commenter asked whether there must have been an actual 
adjudication by FCIC or some other authority of a previous violation.
    Response: There is no requirement for an adjudication of a previous 
violation. However, to be a factor in determining the appropriate 
length of disqualification or amount of civil fine there must be 
sufficient evidence to prove that there was a violation and that it was 
willful and intentional. The Administrative Law Judge will consider 
whether there is sufficient evidence to support that a previous 
violation occurred.
    Comment: One commenter asked for examples of multiple acts of 
wrongdoing.
    Response: FCIC has reconsidered this provision in light of the 
other provisions and comments received and realized that only conduct 
that is willful and intentional can be subject to sanctions and such 
improper conduct constitutes a violation. Since redesignated Sec.  
400.454(c)(3) already covers multiple violations, FCIC has removed the 
provisions relating to multiple acts of wrongdoing to avoid any 
ambiguity.
    Comment: One commenter asked what is a wrongdoing. Wrongdoing is 
not a defined term in the proposed regulations. The commenter asked if 
wrongdoings equate to a violation.
    Response: As stated above, this provision has been removed because 
multiple violations are already covered under redesignated Sec.  
400.454(c)(3)(i).
    Comment: One commenter asked if multiple acts of wrongdoing span 
more than one crop year, and if so, how many crop years.
    Response: As stated above, the provisions regarding wrongdoings 
have been removed. Redesignated Sec.  400.454(c)(3) already covers 
multiple violations.
    Comment: One commenter asked what would constitute ``multiple'' 
acts of wrongdoing. The commenter stated that ``wrongdoing'' should be 
a defined term. The commenter states that a similar problem of 
``individual'' or ``multiple'' violations arises under Sec.  
400.454(f)(1).
    Response: As stated above, the provisions regarding wrongdoings 
have been removed. The term ``individual'' and ``multiple'' are given 
their common usage meaning and, therefore, a definition is not 
necessary. Individual means one and multiple means more than one.
    Comment: Several commenters stated that the phrase ``of so serious 
a nature'' provides no objective guidance as to what conduct rises to 
this level. The commenters suggested that FCIC clearly define precisely 
what conduct will result in the maximum penalties.
    Response: Conduct ``of so serious a nature'' is one of the 
standards used in suspension and debarment proceedings and FCIC intends 
to use the history of the imposition of suspensions and debarments 
under this standard as guidance under this rule. Further, this standard 
still requires that the conditions of willful and intentional be met. 
However, it is not possible to define the actual conduct meeting this 
standard because each case is based on its own factual situation. No 
change has been made in response to this comment.

E. Section 400.454(d)

    Comment: Several commenters objected to imputation of conduct 
between individuals and corporations. They claim that section 515(h) 
does not authorize the imputation of conduct between individuals and 
corporations. In addition, FCIC's proposed rule provides no evidence 
that its board of directors has authorized the Manager to impute 
liability as part of conducting the `business' of FCIC. One commenter 
stated that the provisions for imputations of conduct of one person to 
another are unauthorized by the FCIA, inappropriate, legally improper, 
and both overly broad and vague. One commenter stated that the most 
troubling is the potential to impute conduct from an individual to an 
organization. This provision puts insurance providers at risk for 
unjustified sanctions. However, if RMA proceeds with its inclusion, the 
scope of potentially imputable conduct must be narrowed.
    Response: The Act does not preclude the imputation of improper 
conduct. The purpose of section 515(h) is to protect the Government 
from doing business with persons who have willfully and intentionally 
made misrepresentations. Persons can include entities or individuals. 
However, all entities are operated by individuals who are responsible 
for the actions of the entity. Therefore, those individuals should be 
held responsible for those actions just as much as the entity itself. 
Conversely, entities that benefit from the improper conduct by its 
associates should similarly be held responsible. Without the ability to 
impute improper conduct too many people could find means to shield 
themselves from their conduct. Further, the factors that must be 
satisfied before the imputation of conduct should ensure that the truly 
innocent are not sanctioned. There must be knowledge, approval or 
acquiescence

[[Page 76879]]

before knowledge can be imputed. Further, as stated more fully below, 
FCIC has added provisions to clarify when improper conduct may be 
imputed and that the factors applicable to determining the gravity of 
the violation must also be considered with respect to the person upon 
whom improper conduct is imputed. No change has been made in response 
to this comment.
    Comment: One commenter stated that FCIC cannot rely on 7 CFR part 
3017 for the imputation of liability. FCIC cannot rely on 3017 because 
3017 provides for imputation of liability by FCIC only for `fraudulent, 
criminal, or other improper conduct.' The first problem with this 
concept is that part 3017 was not issued under the authority of FCIA. 
The second problem with relying on part 3017 is that FCIC has not cited 
the statutory authority for that set of regulations as authority for 
the proposed rule. Finally, the rule calls for the imputation of 
liability for any violation of Sec.  400.454(b), which includes 
providing false or inaccurate statements and failing to adhere to a 
`Requirement of FCIC.' A false statement would not be fraudulent unless 
made with the requisite intent. An inaccurate statement or failure to 
adhere to a requirement of FCIC could result simply from negligence. 
Thus, the severity of the conduct embraced by 3017.630 is significantly 
greater than the conduct covered by proposed Sec.  400.454(b).
    Response: Section 515(h) of the Act describes the conduct that is 
subject to sanctions under this rule, not 7 CFR 3017. The purpose of 
the imputation of conduct provisions is to preclude individuals from 
escaping responsibility for their actions by hiding behind entity 
structures. It is not intended to enlarge the scope of the sanctions or 
to apply to conduct that is otherwise not sanctionable under section 
515(h). However, FCIC must employ all reasonable measures to protect 
the program from any person who has committed a violation subject to 
the sanctions in section 515(h). No change has been made in response to 
this comment.
    Comment: One commenter stated that the proposed rule improperly 
expands, without providing a basis for doing so, the scope of the 
allowed imputation under 7 CFR 3017.630 to include omissions and 
failures to act as well as culpable acts performed with intent.
    Response: Section 515(h) of the Act describes the conduct that is 
subject to sanctions under this rule. Section 400.454(d) only seeks to 
ensure that those persons involved in the conduct described in section 
515(h) are held accountable. One way to do this is to preclude 
individuals from shielding themselves through the use of entities or 
from entities shielding themselves by claiming the conduct was caused 
by an individual associated with the entity even though the entity 
benefited from the conduct. No change has been made in response to this 
comment.
    Comment: One commenter stated imputing conduct would be improved by 
two fundamental changes. First, conduct only should be imputed when the 
person to whom the conduct is imputed `knows or has reason to know' of 
the conduct under the definition contained in 7 CFR 1.302(o). The 
standards contained in that definition should work for the Federal crop 
insurance program. Second, the imputation scheme could be improved by 
revising 400.454(f) to conform to 7 CFR 1.335(b). Providing a non-
exhaustive list of aggravating and mitigating factors would create 
appropriate flexibility for dealing with situations where conduct is 
imputed.
    Response: As stated above, FCIC has already included the definition 
of ``knows or has reason to know'' and used that term with respect to 
the imputation of conduct. Further, FCIC has added a provision that 
will require the review of the factors added to Sec.  400.454(c)(2) 
when imposing a sanction on a person to whom conduct was imputed.
    Comment: One commenter stated that to impute the improper conduct 
of a person to another person, such person must know or should have 
known of the improper conduct. This statement indicates that the 
government will assess what the knowledge level of an individual should 
be and prosecute them according to their supposed knowledge. There are 
many factors that can influence the knowledge level of an agent or 
insurance provider representative. Not every insured and agent has the 
same level of knowledge or access to every element of information.
    Response: As stated above, imputation of improper conduct provides 
a means to ensure that those responsible for the improper conduct are 
held accountable. It is to prevent persons from using entities or other 
persons as shields against responsibility. Persons should not be 
permitted to turn a blind eye to what is occurring, while at the same 
time they are benefiting from the conduct. While acceptance of benefits 
of the improper conduct can be considered evidence of knowledge, 
approval or acquiescence of the conduct, a person can still rebut such 
evidence. If the person can prove they were uninvolved and had no way 
of knowing of the conduct, there may be no basis to impute the conduct. 
No change has been made in response to this comment.
    Comment: One commenter stated that holding an organization 
responsible for the acts of an individual is only reasonable if that 
individual is a principal of that organization, and even then there are 
perimeters to be established.
    Response: The commenter's view is too restrictive. There may be 
cases where an entity will allow a subordinate to commit violations or 
turn a blind eye to such conduct in order to obtain the benefits. For 
example, an agency may knowingly allow agents to falsify records in 
order to increase premiums and their commissions. The agents may not be 
a principal of the agency, but the agency by allowing the improper 
conduct, would be complicit and should be held accountable. There are 
sufficient parameters in the rule to ensure that persons who have no 
way of knowing of the improper conduct and have no involvement are not 
held accountable for the actions of others. No change has been made in 
response to this comment.
    Comment: Two commenters stated it would appear that the rule would 
hold a person responsible for the acts of another even where such 
statements, acts or omissions are not fraudulent. The commenter feels 
that other persons could be held to a higher standard than the person 
making the statement or committing the act or omission. If there is to 
be any imputation of liability, it must pertain strictly to fraudulent 
statements, acts or omissions and require actual knowledge or a reason 
to know.
    Response: Persons to whom conduct may be imputed are not held to a 
higher standard. The rule requires knowledge, approval or acquiescence 
before the conduct can be imputed from an individual to the 
organization. Further, knowledge of or a reason to know is required 
before conduct can be imputed from an entity to an individual. As 
stated above, FCIC has added a definition of ``knows or has reason to 
know'' obtained from 7 CFR 1.302. While acceptance of benefits of the 
improper conduct can be considered evidence of knowledge, approval or 
acquiescence of the conduct, a person can still rebut such evidence. If 
the person can prove they were uninvolved and had no way of knowing of 
the improper conduct, there may be no basis to impute the improper 
conduct. However, as stated above, fraudulent conduct is not required 
before a sanction may be imposed. Section

[[Page 76880]]

515(h) refers to willfully and intentionally providing false or 
inaccurate information or willfully and intentionally failing to comply 
with a requirement of FCIC. If such conduct occurs and the requirements 
for the imputation of such conduct have been met, these persons will be 
subject to the sanctions contained in the rule. No change has been made 
in response to this comment.
    Comment: One commenter stated that FCIC is proposing to revise 
Sec.  400.454(d) to allow FCIC to impute the improper conduct of a 
person to another person if the other person has the power to direct, 
manage, control or influence the activities of the person that is being 
cited for improper conduct. Since an insurance provider employs agents 
to sell policies, it follows the entire organization could potentially 
be cited for improper conduct of an agent. Both could be disqualified 
from selling crop insurance.
    Response: An insurance provider could only be at risk of sanction 
if it is proven that the insurance provider had knowledge, approved of 
or acquiesced to the conduct of the agent that is the subject of the 
sanction. While acceptance of benefits of the improper conduct can be 
considered evidence of knowledge, approval or acquiescence of the 
conduct, a person can still rebut such evidence. If the person can 
prove they were uninvolved and had no way of knowing of the conduct, 
there may be no basis to impute the conduct. However, there have been 
instances in the past where insurance providers have allowed false 
information, such as backdated documents, to be provided by agents. In 
such cases, the insurance provider should be held accountable. No 
change has been made in response to this comment.
     Comment: One commenter stated that the proposed rule seems to 
indicate that suspension and/or debarment may happen without the 
parties being fully aware of the reasoning behind the penalty. The 
commenter recommends that this provision be eliminated for 
`participants' and FCIC fully explain the process.
     Response: FCIC is unsure of the basis for the comment. FCIC must 
prove that a person willfully and intentionally provided false or 
inaccurate information or willfully and intentionally failed to comply 
with a requirement of FCIC. Such conduct cannot be imputed to another 
unless there was knowledge, approval or acquiescence. Further, the 
process of imposing disqualifications and civil fines has been in place 
since 1993 and, before any sanction is imposed, the person will have an 
opportunity to hear the evidence against them and provide evidence in 
their defense. An Administrative Law Judge will determine whether a 
sanction under this rule can be imposed. Therefore, there should never 
be a situation where a person would not be aware of the basis for the 
sanction. In addition, by statute, sanctions apply to participants. 
Therefore, there is no basis to remove them from this rule. No change 
has been made in response to this comment.
     Comment: One commenter stated that at a minimum, the scope of 
potentially imputable conduct must be narrowed to only impute conduct 
of officers, directors and conduct of employees that is specifically 
ratified or endorsed by the entity. Moreover, the entity must be given 
`credit' for having practices that attempt to prevent rule violations 
and encourage `whistleblower complaints' of suspected violations. Thus, 
if an entity addresses the allegedly `bad' conduct by its employee or 
independent contractor after its officers have been made aware of the 
situation, it should not be subject to any of the penalties under the 
rule.
     Response: The rule requires the knowledge, approval or 
acquiescence of the entity before improper conduct can be imputed. 
Unless these standards are met, no conduct can be imputed to the 
entity. However, it is not practical to limit the imputation of conduct 
to when such conduct is ``ratified'' or ``endorsed'' by the entity. 
Such actions suggest the need for an affirmative action on the part of 
the entity. However, in most cases, there is a failure of the entity to 
act when it knew or should have known of the improper conduct. If the 
safeguards put in place by the entity are working there should be no 
risk of the imputation of conduct to it. Further, one of the factors to 
be considered in determining the gravity is the internal controls in 
place. However, FCIC does not know what the commenter meant by 
``addressing'' the alleged bad improper conduct. Once the entity 
becomes aware of the improper conduct that is subject to sanction, it 
must be reported to FCIC so it can take the appropriate action against 
the wrongdoer. Failure to report such improper conduct can make the 
entity at least appear complicit in the conduct. If the person rejects 
the improper conduct and any benefit derived therefrom, such as refusal 
to accept documents that are backdated, etc., then there may not be a 
basis for the imputation of conduct.
     Comment: One commenter stated that clarification concerning 
imputation of liability to other persons is needed. It must be proven 
that the third party had actual knowledge or at least a reason to know 
of the fraudulent statement, act or omission of another.
     Response: As stated above, this rule does require knowledge or at 
least a reason to know before conduct can be imputed. While acceptance 
of benefits of the conduct can be considered evidence of knowledge, 
approval or acquiescence of the conduct, a person can still rebut such 
evidence. If the person can prove they were uninvolved and had no way 
of knowing of the conduct, there may be no basis to impute the conduct. 
However, fraudulent is not the standard. If a person willfully and 
intentionally provides a false or inaccurate statement, the person is 
subject to the sanctions contained in this rule.
     Comment: One commenter stated that FCIC has the authority to 
sanction, even debar an insurance provider as a result of the violation 
of a low level employee.
     Response: An insurance provider cannot be disqualified or assessed 
a civil fine unless it is proven that it had knowledge of or reason to 
know of the willful and intentional violation by the low level 
employee. While acceptance of benefits of the improper conduct can be 
considered evidence of knowledge, approval or acquiescence of the 
conduct, a person can still rebut such evidence. If the person can 
prove they were uninvolved and had no way of knowing of the conduct, 
there may be no basis to impute the conduct. However, there have been 
instances in the past where the insurance provider has turned a blind 
eye to misconduct it knew about, such as backdated documents, and in 
such cases the insurance provider should be held accountable.
     Comment: One commenter objects to imputing the conduct of an 
`individual associated with an organization,' as FCIC has not defined 
what it means to be `associated with an organization.' The commenter 
asks whether a contractor is `associated with' an insurance provider or 
whether that contractor's subcontractor is associated with an insurance 
provider.
     Response: Any person that performs work on behalf of the 
organization can be found to be associated with the organization. 
However, that does not necessarily mean that conduct will be imputed to 
the organization. The organization must know or have reason to know of 
the improper conduct. While acceptance of benefits of the improper 
conduct can be considered evidence of knowledge, approval or 
acquiescence of the conduct, a person can still rebut such evidence. If 
the person can prove they were uninvolved and had no way of knowing of 
the conduct, there may be

[[Page 76881]]

no basis to impute the conduct. No change has been made in response to 
this comment.
     Comment: One commenter stated that a corporation's receipt of a 
benefit from an individual's violation does not `evidence knowledge, 
approval or acquiescence' unless the corporation knows or should know 
of either the violation or that the benefit resulted from the 
violation.
     Response: While acceptance of benefits of the improper conduct can 
be considered evidence of knowledge, approval or acquiescence of the 
conduct, a person can still rebut such evidence. If the person can 
prove they were uninvolved and had no way of knowing of the conduct, 
there may be no basis to impute the conduct.
     Comment: One commenter stated (1) the imputation appears to be 
automatic if the `conduct occurred in connection with the individual's 
performance of duties for or on behalf of that organization.' The 
commenter stated a reasonable approach would be to make conduct by a 
`principal,' no presumed imputation should exist with respect to any 
person who is not a principal. (2) While receipt of a benefit can be 
`evidence of knowledge, approval or acquiescence,' it only should be 
rebuttable evidence. (3) The proposed rule gives no recognition of the 
extent to which the organization's practices attempted to preclude such 
conduct. USDA elsewhere has recognized the relevance of this factor. 
See for example, 7 CFR 1.335(b)(11). (4) Imputing knowledge in the 
severe fashion proposed could chill internal investigative efforts by 
insurance providers and ultimately cooperation with FCIC in identifying 
and punishing misconduct. FCIC should not adopt a rule that might chill 
such efforts.
     Response: (1) The commenter's view is too restrictive. There may 
be cases where an entity will allow a subordinate to commit violations 
or turn a blind eye to such conduct in order to obtain the benefits. 
For example, an agency may knowingly allow agents to falsify records in 
order to increase premiums and their commissions. The agents would not 
be a principal of the agency, but the agency by allowing the improper 
conduct would be complicit and should be held accountable. (2) While 
acceptance of benefits of the improper conduct can be considered 
evidence of knowledge, approval or acquiescence of the conduct, a 
person can still rebut such evidence. If the person can prove they were 
uninvolved and had no way of knowing of the conduct, there may be no 
basis to impute the conduct. (3) As stated above, having internal 
controls in place is one of the factors to be considered when 
determining the gravity of the violation. (4) This rule should not 
chill the investigative efforts of the entity. If the entity discovers 
improper conduct subject to sanction under this rule, the entity can 
shield itself from any imputation of such conduct by not accepting the 
benefits from the conduct and promptly reporting the improper conduct 
to FCIC. No change has been made as a result of the comment.
     Comment: One commenter stated that an insurance provider can be 
sanctioned based simply upon the fact that the conduct occurred in 
connection with the individual's performance of duties for or on behalf 
of that organization. If an insurance provider did not actively 
participate in the agent's or adjuster's violation, the agent's or 
adjuster's conduct should not be imputed to the insurance provider and 
the insurance provider should not be sanctioned under this rule.
     Response: An insurance provider that did not actively participate 
in an agent's or adjuster's violation and it is proven that the 
insurance provider did not know or have reason to know of the 
violation, the insurance provider should not be sanctioned. As stated 
above, the entity can shield itself from any imputation of such conduct 
by not accepting the benefits from the improper conduct and promptly 
reporting the conduct to FCIC. No change has been made as a result of 
this comment.
     Comment: One commenter stated that whether a person had reason to 
know of a particular course of conduct is a very subjective analysis. 
The commenter asked how FCIC plans to determine whether one person had 
a reason to know of the conduct of another.
     Response: Acceptance of the benefits of the conduct subject to the 
sanction is evidence of knowledge. However, as stated above, that 
evidence is rebuttable. There are other ways to establish a reason to 
know, such as an obligation to review documents that contain the false 
statements, etc. In all cases, the person will have the opportunity to 
provide evidence in defense and the issue will be decided by an 
independent Administrative Law Judge.
     Comment: Two commenters, citing 41 AM JUR 2d, Independent 
Contractors section 2 (2007), stated that liability of an independent 
contractor may not be imputed to a corporation, but it imposes a 
virtually impossible standard on large insurance providers. Under the 
proposed regulations, a corporation with thousands of lower-level 
employees and independent contractors can be held liable and subject to 
disqualification for the rogue actions of a single independent 
contractor [or any other individual `associated' with the insurance 
provider], even if that individual acts in violation of insurance 
provider policy unbeknownst to the insurance provider.
     Response: As stated above, the corporation can only be subject to 
sanctions under this rule if it knew of or could reasonably have known 
of the improper conduct. While acceptance of benefits of the conduct 
can be considered evidence of knowledge, approval or acquiescence of 
the improper conduct, a person can still rebut such evidence. If the 
corporation can prove they were uninvolved and had no way of knowing of 
the conduct, there may be no basis to impute the conduct. Therefore, 
the corporation is not liable for the rogue acts of a single 
independent contractor that is unknown or could not have been known by 
the corporation. No change has been made in response to this comment.
     Comment: One commenter citing Federal law stated that absent 
evidence that Congress intended to impose such harsh strict liability 
standards on corporations, of which there is none, the proposed rule 
cannot stand.
     Response: This rule is not imposing strict liability on 
corporations. Conduct can only be imputed if the corporation knew or 
reasonably should have known of the improper conduct. While acceptance 
of benefits of the conduct can be considered evidence of knowledge, 
approval or acquiescence of the conduct, a person can still rebut such 
evidence. If the corporation can prove they were uninvolved and had no 
way of knowing of the conduct, there may be no basis to impute the 
conduct. No change is made in response to this comment.
     Comment: One commenter stated that whether an individual had 
`reason to know' a specific fact is not equivalent to whether an 
individual `should have known' of the fact and FCIC should amend the 
rule to clarify the applicable standard. USDA's civil fraud 
regulations, under 7 CFR 1.302(o), already define the phrase `knows or 
has reason to know' in the context of fraud and false statements. 
Another commenter stated that the language `reason to know' should be 
defined to make clear that this does not create a `should have known' 
standard. The commenter stated that the `reason to know' requires that 
a person draw reasonable inferences from information already `known to 
him' and does not give rise to the duty of inquiry that is

[[Page 76882]]

created by a `should have known' standard.
     Response: As stated above, FCIC has added a definition ``knows or 
has reason to know'' for clarity and used the definition contained in 7 
CFR 1.302(o). However, also as stated above, fraud is not a 
prerequisite to the imposition of sanctions under this rule. Section 
515(h) of the Act only requires that a person willfully and 
intentionally provide a false or inaccurate statement or willfully or 
intentionally fail to follow a requirement of FCIC.
     Comment: The commenter, citing federal law, stated that imputation 
from an organization to another organization is contrary to existing 
law. The mere existence of a partnership, joint venture, joint 
application, association, or similar arrangement does not automatically 
give rise to shared liability. The commenter stated that the proposed 
rule must be clarified to include additional prerequisites for imputed 
liability such as actual knowledge or reason to know of the culpable 
acts.
     Response: The issue is not shared liability. The question is 
whether a person can be held accountable for the actions on another. As 
stated above, the rule requires that there be knowledge or reason to 
know of the improper conduct. While acceptance of benefits of the 
conduct can be considered evidence of knowledge, approval or 
acquiescence of the conduct, a person can still rebut such evidence. If 
the corporation can prove they were uninvolved and had no way of 
knowing of the conduct, there may be no basis to impute the conduct. No 
change has been made in response to this comment.

F. Section 400.454(e)

     Comment: One commenter stated that the Agricultural Market 
Transition Act cited in Sec.  400.454(e)(1)(i)(B) was replaced by the 
Farm Security and Rural Investment Act of 2002.
     Response: The reference to the Agricultural Market Transition Act 
in Sec.  400.454(e)(1)(i)(B) will be deleted and replaced with the Farm 
Security and Rural Investment Act of 2002 or a successor statute.
     Comment: One commenter stated that the prohibition contained in 
Sec.  400.454(e)(1)(ii) is neither discussed in nor implied by section 
515(h), therefore it is an impermissible expansion of the penalties 
authorized by ARPA.
     Response: FCIC does not understand this comment. Section 515(h)(1) 
of the Act refers to ``producer, agent, loss adjuster, approved 
insurance provider, or any other person.'' This means that the 
sanctions in section 515(h) can apply to any person who willfully and 
intentionally provides false or inaccurate information or willfully and 
intentionally fails to comply with a requirement of FCIC. However, 
section 515(h) provides for different consequences depending on whether 
the person is a producer or other person. This distinction is carried 
over into Sec.  400.454(e)(1)(ii). That fact that Sec.  
400.454(e)(1)(ii) refers to participant is not an expansion of the 
available sanction since a participant, as defined in the rule, just 
delineates a group of persons already included under section 515(h). No 
change is made in response to this comment.
    Comment: One commenter asked if Sec.  400.454(e)(1)(i)(I) 
(redesignated Sec.  400.454(e)(1)(i)(H)) applied only to federal 
assistance laws and if so, the rule should be worded to reflect that 
fact.
    Response: Section 515(h) of the Act refers to ``any law that 
provides assistance to the producer of an agricultural commodity 
affected by a crop loss or decline in the prices of agricultural 
commodities.'' It does not make any distinction between federal or any 
other laws but as a practical matter, disqualification can only apply 
to programs under the auspices of the Federal Government. Therefore, 
redesignated Sec.  400.454(e)(1)(i)(H) will be revised to read: ``Any 
federal law that provides assistance to the producer of an agricultural 
commodity affected by a crop loss or decline in the prices of 
agricultural commodities.''
    Comment: One commenter stated that the requirements were far too 
broad and overreaching to be fair and enforceable and that an insurance 
provider could be subject to sanctions even if it strictly complied 
with the rule to periodically check the Ineligible Tracking System 
(ITS) and Excluded Parties List System (EPLS). An insurance provider 
could be required to check the ITS and EPLS daily for not only 
prospective business partners, but also for its current employees, 
adjusters, and agents. In an example given, insurance provider A 
contracts with an adjuster. Insurance provider A checks ITS and EPLS 
and the adjuster is cleared. The same adjuster later contracts with 
insurance provider B. The adjuster is then disqualified for conduct 
associated with his work for insurance provider B. However, prior to 
insurance provider A's next periodic check of ITS and EPLS, the 
adjuster works several claims for insurance provider A.
     Response: The burden imposed by this rule is no different than the 
burden that exists with respect to suspended or debarred persons. The 
Government wants to preclude such persons from circumventing their 
disqualification by hiding under the auspices of another person. 
Participants in the program have the responsibility to periodically 
review EPLS and ITS to determine whether the persons it does business 
with are included on such lists. FCIC will examine the reasonableness 
of the reviews to determine whether it is appropriate to disqualify the 
participant who does business with a disqualified person. Such 
disqualification is not automatic. No change is made in response to 
this comment.
     Comment: One commenter stated that the rule's requirement to 
periodically review the ITS and EPLS to determine persons who are 
disqualified from participation in the Federal crop insurance program 
directly contravenes the statutory requirement that the relevant 
sanctions under the proposed rule be confined to `willful and 
intentional' acts.
     Response: There is no contravention of the statute by imposing 
disqualification on persons who elect to do business with a person that 
has been disqualified. Without this requirement, disqualified persons 
will be able to hide their participation by hiding under another 
person. FCIC has the authority to prevent such circumvention and has 
elected to adopt the same remedies as is applicable to persons who do 
business with suspended and debarred persons. Disqualification is not 
automatic and FCIC will consider the circumstances on a case-by-case 
basis. No change is made in response to this comment.
    Comment: Two commenters stated that insurance providers have 
greater access than individual agencies to monitor ITS and that 
agencies don't have the system to do an effective job. Although the 
insurance providers monitor ITS, the agency may not receive 
notification of ineligibility until several months have passed or until 
after an initial application was accepted and was detected only when a 
loss was submitted.
    Response: Persons who are disqualified are also reported to the 
General Services Administration for inclusion on the EPLS. EPLS is 
available to everyone. Therefore, all participants have the ability to 
timely determine whether the persons with whom they are doing business 
have been disqualified. No change is made in response to this comment.
    Comment: One commenter asked if entity ABC is ineligible, and new 
entity DEF is set up, how will agents discover the new entity, without 
some elaborate system. It would appear that FCIC could have a system 
which would automatically detect, in a timely manner

[[Page 76883]]

before insurance attaches, by cross referencing social security number.
    Response: There is no foolproof method to prevent disqualified 
persons from trying to hide their involvement. The participants' 
responsibility is to review ITS and EPLS to determine whether it is 
doing business with a person listed. If a person is not listed because 
it has changed its name, participants cannot be held accountable for 
the knowledge. However, if the person is required to provide its social 
security number or other identification number in connection with its 
participation in the program or affiliation with the participant, such 
persons should be identifiable on ITS or EPLS. No change is made in 
response to this comment.
    Comment: One commenter stated that spousal tracking would be 
tedious to track as there may be multiple entries for a given last 
name. The commenter asked whether this means that it will have to go 
through all insureds with that last name. What if a person retains 
their maiden name and their spouse is ineligible? The commenter asks 
how this will be tracked.
    Response: If the spouse is disqualified under this rule, the spouse 
should be separately listed in ITS and EPLS. Therefore, there should be 
no difficulty in tracking such persons.
    Comment: One commenter was concerned that an agency could become a 
victim if an insured were to testify that he knowingly took a false 
report when, in fact he didn't; it would be the agent's word against 
the insured's word. The commenter asks where the burden of proof lies.
    Response: The burden of proof lies with FCIC, who must establish 
that the agent willfully and intentionally provided a false or 
inaccurate statement. Testimony can provide evidence, but the agent 
will have the opportunity to provide a defense, which will all be 
considered by a neutral Administrative Law Judge.
    Comment: One commenter stated that agents should not be involved in 
any aspect of production fact finding as it could be interpreted as a 
conflict of interest. The commenter suggested that this could be 
remedied by FCIC making production fact finding by agents a conflict of 
interest.
    Response: Agents are precluded from participating in any aspect of 
the loss adjustment process under the conflict of interest provisions 
in the SRA. It is the loss adjuster that would be determining 
production. Further, it is the loss adjuster that should be providing 
the production information to the insurance provider, not the agent. 
However, if the agent knows that false information has been provided 
and does nothing, the agent can be held responsible. No change is made 
in response to this comment.
    Comment: One commenter is concerned that a mistake could be turned 
into a ``willful and intentional'' act due to a person's 
misinterpretation.
    Response: It is difficult to see how this could happen. FCIC bears 
the burden of proving willful and intentional conduct and the person 
will be provided an opportunity to provide a defense. The evidence will 
be considered by a neutral Administrative Law Judge, who will determine 
whether FCIC has met its burden. This due process should protect 
against misinterpretations. No change is made in response to this 
comment.
    Comment: One commenter is concerned about the imposition of 
multiple penalties of $100,000 per occurrence for multiple events. The 
commenter recommends that participants should not be punished for 
simple errors or misinterpretation of a rule, but participants should 
be punished for willful and intentional abuses.
    Response: Simple errors or misinterpretation of a rule are not the 
basis for sanctions. There must be willful and intentional conduct, 
which is defined in the rule. Further, the civil fine is $10,000 per 
violation, not $100,000. No change is made in response to this comment.
    Comment: One commenter suggests if an agent submits an acreage 
report with false information it appears to be shifting the 
responsibility of acreage reporting from the insured to the agent. The 
agent should not be expected to act as a law enforcement official. 
Agents are not authorized to require hard copy records from the insured 
unless the records are specifically requested by the insurance 
provider.
    Response: The proposed rule is not shifting the responsibility of 
acreage reporting from the insured to the agent. The insured is 
responsible for the accuracy of the provided information. However, 
agents should not provide any documentation with information it knows 
or has reason to know is false. At a minimum the agent should ask the 
insured if the information provided is correct. If an agent does not 
know nor has no reason to know that the information is false, there is 
no basis to sanction the agent. No change is made in response to this 
comment.
    Comment: One commenter is concerned about the rule's reference to 
proving willful and intentional error versus unintentional error. 
Unintentional errors can occur; the most experienced operator, agent or 
adjuster with years of training or coverage, can make a mistake on a 
report. Months or years after the unintentional error, these mistakes 
may be construed as intentional omissions. Specific and defined 
consideration of the values and variables used to determine guilt or 
innocence is needed.
    Response: Unintentional errors are not the basis for sanctions. 
FCIC bears the burden of proving that the error was willful and 
intentional at the time it was made and the person will have the 
opportunity to provide evidence in the defense. An independent 
Administrative Law Judge will decide whether FCIC has met its burden. 
No change is made in response to this comment.
    Comment: One commenter stated that the prohibition contained in 
Sec.  400.454(e)(3)(ii) is neither discussed in nor implied by section 
515(h) and therefore, is an impermissible expansion of the penalties 
authorized by ARPA.
    Response: Section 400.454(e)(3)(ii) precludes participants from 
conducting business directly related to crop insurance with 
disqualified persons or conducting any other business if such business 
would permit the disqualified person from receiving a benefit under a 
program administered under the Act. Under section 515(h) of the Act, 
FCIC is expressly authorized to exclude persons from participating in 
the crop insurance program. Ancillary to this express authority is the 
authority to take such actions as are necessary to ensure that 
disqualified persons do not continue to participate in, or receive 
benefits from, the crop insurance program. FCIC exercised this 
authority in Sec.  400.454(e)(3)(ii). Without this provision, persons 
could avoid their disqualification by affiliating with other persons. 
Further, as learned in the suspension and debarment process, the only 
meaningful way to prevent persons from doing business with disqualified 
persons is to make them also subject to disqualification. No change is 
made in response to this comment.
    Comment: One commenter stated that the penalty imposed under Sec.  
400.454(e)(3)(iii) is inequitable and overly broad. For example, if a 
disqualified agent also is a chemical supplier, it is unreasonable for 
FCIC to prohibit insureds from purchasing chemicals from that 
individual.
    Response: Doing business with a disqualified person does not 
automatically subject the participant to disqualification. The purpose 
of Sec.  400.454(e)(3)(iii) is to preclude persons from circumventing 
their

[[Page 76884]]

disqualification. FCIC will have to evaluate whether the business is 
related to the crop insurance program, the disqualified person will be 
able to receive benefits under the crop insurance program as a result 
of the business relationship, or the disqualified person is using the 
business relationship to obtain benefits not otherwise entitled to 
because of the disqualification. No change is made in response to this 
comment.
    Comment: One commenter asked what occurs in a situation in which a 
participant is unaware that the person with whom he or she is doing 
business was disqualified. The commenter asks whether a participant has 
an obligation to inquire of a prospective business partner as to its 
status in the crop insurance program.
    Response: A participant has an obligation to review ITS and EPLS to 
discover whether a person with whom they are doing business is 
disqualified. Therefore, unless there is some subterfuge on the part of 
the disqualified person, such as using different names, social security 
numbers, etc., there should not be any situation where the participant 
is unaware they are doing business with a disqualified person.
    Comment: One commenter stated that the phrase in Sec.  
400.454(e)(3)(iii), `may be subject to disqualification' seems 
selective. The commenter asks what criteria FCIC will apply in 
determining whether to disqualify a participant for doing business with 
a disqualified person.
    Response: The purpose of the provision is to prevent disqualified 
persons from circumventing their disqualification. There may be 
situations where the participant does not know and has no reason to 
know that a person has been disqualified, such as using a slightly 
different name or social security number. Under these circumstances, it 
is unlikely disqualification could be imposed on the participant. There 
may also be situations where the business conducted is in no way 
related to the crop insurance program. However, there may also be 
situations where the participant knows the person is disqualified and 
elects to do business with them anyway. Under such circumstances, 
disqualification of the participant may be appropriate. Each case will 
have to be considered on its own merits. This may seem selective, but 
all cases will ultimately be determined by a neutral Administrative Law 
Judge who will determine whether FCIC has met its burden.
    Comment: One commenter stated that Sec.  400.454 refers to a person 
as an insurance provider and the disqualification of an insurance 
provider is also broad and ambiguous. The commenter asks if the entire 
insurance provider, the individual, or both are penalized if a 
qualifying error occurs. Clarification is needed to explain the process 
used when an insurance provider is disqualified because of an error.
    Response: Insurance providers cannot be disqualified because of an 
error unless such error was committed willfully and intentionally. If 
the person named in the disqualification is the insurance provider, 
then the insurance provider as a business entity is disqualified. If an 
individual affiliated with the insurance provider is disqualified, the 
disqualification applies to the individual, not the insurance provider 
unless specifically named. The process used for disqualification is the 
same for all persons, including individuals and insurance providers. A 
complaint is filed seeking disqualification and the person can mount a 
defense before a neutral Administrative Law Judge.
    Comment: One commenter stated that Sec.  400.454(e)(3)(ii) states 
that `no participant may conduct business with a disqualified 
participant or other person * * * if, through the business 
relationship, the disqualified participant or other person will derive 
any monetary or non-monetary benefit from a program administered under 
the Act.' It is not clear what `program administered under the Act' 
means.
    Response: ``Program administered under the Act'' means any program 
authorized under the Federal Crop Insurance Act. This would include all 
crop insurance programs, education programs, research and development 
programs, expert reviews, etc. It would not include any program not 
authorized under the Act, such as private hail insurance or other lines 
of business.
    Comment: One commenter stated that the rule is overbroad in that it 
could be interpreted to apply to contractual, statutory, or other pre-
existing legal rights and obligations that an insurance provider might 
have with `other persons,' i.e., its employees subject to future 
disqualification. For example, if an employee is disqualified for 
violating `FCIC requirements' and is terminated for cause, under 
federal law the insurance provider must continue to honor its existing 
ERISA obligations to its former employee. As the rule is written, 
allowing the disqualified participant to continue to derive these 
monetary benefits, as mandated by ERISA, could subject the insurance 
provider to disqualification. Another commenter stated that contractual 
and statutory rights that precede disqualification should not be 
affected. If an employee is disqualified, the employer is still 
obligated to honor these pre-existing obligations. The rule should 
clarify that honoring contractual and statutory obligations that 
precede the date of disqualification does not subject an entity to 
potential disqualification because of indirectly providing a `monetary 
or non-monetary benefit from a program administered under the FCIA.'
    Response: As stated above, the purpose of this provision is to 
prevent disqualified persons from circumventing their disqualification 
by affiliating with other participants. In the scenario presented, once 
the participant severs the relationship with the disqualified person, 
FCIC recognizes that there may be legal obligations that the 
participant must continue to fulfill, such as ERISA. However, such 
arrangements may be subject to scrutiny to ensure that they are not a 
subterfuge to continue to channel benefits to a disqualified person. 
FCIC has added provisions to clarify that simply fulfilling a previous 
contractual or statutory obligation after termination of the 
relationship with a disqualified person is not doing business with such 
person unless the arrangement is determined to provide a means of 
circumventing the disqualification, for example, a severance agreement 
executed at the time of termination that provides payments or benefits 
similar to what the person was previously receiving.
    Comment: One commenter stated that the rule has no limitation with 
respect to the type of business relationship that a participant or 
other person has with a `disqualified participant or other person.' 
Thus, the business activity could be completely unrelated to any 
business transaction subject to the FCIA or to the receipt of any 
benefit from the USDA under another Federal program. Second, such a 
proposed provision creates a serious risk of blacklisting individuals.
    Response: There is no limitation with respect to the type of 
business because FCIC does not want to create loopholes for 
disqualified persons to be able to create business opportunities to 
circumvent their disqualification. However, Sec.  400.454(e)(3) 
expressly states that the business must directly relate to the Federal 
crop insurance program or allow the person to receive a benefit from a 
program administered under the Act. As stated above, such

[[Page 76885]]

programs would include the contracts, cooperative agreements and 
partnerships for research and development, educations, etc. Therefore, 
there is no possibility of ``blacklisting'' individuals. FCIC has the 
right to elect not to permit disqualified persons to circumvent their 
disqualification by preventing their ability to obtain benefits related 
to crop insurance or another program administered under the Act. No 
change is made in response to this comment.
    Comment: One commenter stated that the proposed rule proposes 
routine review of the ITS and EPLS to ensure FCIC is not doing business 
with a disqualified person. Each insurance provider handles the flow of 
information from RMA systems in a different manner. This commenter does 
not use ITS or EPLS. Agents are notified if an insured is ineligible, 
however the manner and timing of the notification varies with each 
insurance provider. The proposed rule would hold agents accountable for 
review of systems of which they have little or no knowledge. The 
commenter recommends that RMA systems not accept data for ineligible 
producers.
    Response: The commenter's suggestion presupposes that the 
disqualified person is an agent or a producer and this may not be the 
case. Therefore, FCIC would have no means to identify when participants 
are doing business with disqualified persons. Further, all participants 
are already under an obligation to check the ITS and ELPS with respect 
to persons who may be suspended or debarred. That would include agents, 
loss adjusters, producers, and any other persons. Therefore, this rule 
does not add a new obligation; it simply reaffirms the existing 
obligation and places participants on notice to also check for 
disqualified persons. No change is made in response to this comment.
    Comment: One commenter stated that, as the rule is written, an 
agent and agency could be disqualified from selling crop insurance for 
an error that was not willful or intentional on their part.
    Response: It is difficult to see how continuing to do business with 
a disqualified person is not willful or intentional unless there is 
some deceit on the part of the disqualified person. The participant has 
a duty to check the ITS and ELPS to identify disqualified persons. The 
participant knows that it is precluded from doing business with such 
persons. Therefore, the participant's continuance of business with a 
disqualified person under the circumstances can be considered willful 
and intentional.

G. Section 400.454(f)

    Comment: One commenter stated that the civil fines were too 
miniscule and suggested that the minimum fine should be $50,000, civil 
fines should be imposed against all individuals who participated in the 
entire scheme, and jail time of five years minimum for all offenders 
involved in the loan process.
    Response: FCIC cannot impose a civil fine in any amount greater 
than that authorized in section 515(h) of the Act. Further, nothing in 
the Act authorizes the imposition of incarceration. However, to the 
extent that the conduct that subjects a person to disqualification may 
violate any criminal statutes, there is no impediment to the 
prosecution of such persons. Further, any individual who participated 
in the conduct that is subject to disqualification is also subject to 
disqualification provided their conduct meets the standards contained 
in this rule.
    Comment: One commenter stated that although Sec.  400.454(c) 
requires FCIC to consider the ``gravity'' of an offense when imposing a 
civil fine, FCIC should amend subsection (f) to recognize the concept 
of materiality.
    Response: As stated above, FCIC has amended the provisions in Sec.  
400.454(c) regarding whether to impose a civil fine and the amount to 
include materiality.
    Comment: One commenter stated that the rule improperly fails to 
recognize any concept of materiality. The absence of a materiality test 
is contrary to FCIA, which only authorizes sanctions for material 
violations. Because the proposed rule applies to reinsurance 
agreements, it clearly sets up a situation where immaterial conduct is 
punished beyond the levels contemplated in the SRA. The commenter 
suggested that this section could be improved by including the non-
exhaustive list of aggravating and mitigating factors found under 7 CFR 
1.335(b).
    Response: As stated above, FCIC has amended the provisions in Sec.  
400.454(c) regarding whether to impose a civil fine and the amount to 
include materiality. Further, FCIC has also added the list of 
aggravating and mitigating factors found in 7 CFR 1.335(b) to Sec.  
400.454(c).
    Comment: Two commenters stated that Sec.  400.454(f)(1) imposes a 
separate civil fine for each individual action. It was suggested that 
FCIC should fully explain what constitutes an `individual action'.
    Response: FCIC has revised the provision to refer to ``each 
violation.'' FCIC has also revised the definition of ``violation'' in 
Sec.  400.452 to specifically refer to the elements for 
disqualification or civil fines contained in Sec.  400.454.
    Comment: One commenter asked what would constitute an individual or 
multiple violations.
    Response: As stated above, each willful and intentional false or 
inaccurate statement or each act that would be considered a willful and 
intentional failure to comply with a requirement of FCIC would be 
considered an individual violation. For example, each document that 
contains a back-dated date would be an individual violation. If there 
is more than one such document or there are different false statements 
on more than one document, there would be multiple violations.
    Comment: One commenter stated that FCIC proposes to eliminate 
current Sec.  400.454(f), which requires the hearings to be governed by 
the Rules of Practice Governing Formal Adjudicatory Proceedings 
Instituted by the Secretary. Without this section, it is unclear what 
rules apply to the hearings. The commenter suggested that FCIC state 
what rules of practice apply to these proceedings.
    Response: The provisions from current Sec.  400.454(f) that provide 
for the rules of practice have not been eliminated. They were moved to 
Sec.  400.454(a).
    Comment: One commenter suggested that the last sentence of 
400.454(f)(3)(i) should end with the period inside the end parenthesis 
and the preceding sentence should end with a period of its own; `* * * 
the specified due date. (If * * * signed by FCIC.)' instead of `* * * 
the specified due date (if * * * signed by FCIC).'
    Response: Given that these are independent sentences, FCIC has 
removed the parenthesis and added periods at the end of each sentence.

H. Section 400.454(g)

    Comment: Two commenters stated that the language about insurance 
providers' assumption of the book of business introduces ambiguity and 
is absolutely unnecessary. As a matter of both fact and law, policies 
written by an agent or an agency on behalf of an insurance provider are 
already the direct liability of the insurance provider, so no 
assumption would be required. Adding this provision simply introduces 
confusion to an otherwise clear situation. On the other hand, it is 
appropriate for this provision to require the insurance provider to 
assign policies written by a disqualified agent or agency to a 
different agent or agency.
    Response: The commenter is correct that when an agent writes a 
policy for a particular insurance provider, that

[[Page 76886]]

insurance provider has already assumed the liability for such policy. 
Therefore, this provision is removed. The requirement that the 
insurance provider assign the policies to a different agent or agency 
will be retained. However, ultimately it is the producer that has the 
right of selection of which agent will service their business and may 
move their policy to any agent of their choice that is not 
disqualified. Therefore, the provision is revised to allow for this 
election.
    Comment: One commenter stated that the proposed rule appears to 
suggest that an agent rightfully found in violation can have his entire 
business confiscated, in addition to disqualification and other 
pecuniary fines. This could lead to constitutional problems.
    Response: The agent is precluded from selling or servicing any 
policies or receiving any benefits from the sale or service of such 
policies during the period of disqualification. However, as the 
insurer, the insurance provider has an obligation to ensure that the 
policies are sold and serviced in accordance with the approved policies 
and procedures of FCIC. As stated above, it is the producer that has 
the right to elect which agent will sell and service his or her policy. 
If the producer fails to make this election, under the rule, the 
insurance provider must assign the policy to another agent but the 
assignment of any policy will only last for as long as the period of 
disqualification. After the disqualification period, subject to the 
election of the producer, the agent is entitled to get the book of 
business back. The provision has been revised to clarify that after the 
period of disqualification, policies that were assigned by the 
insurance provider revert back to the previously disqualified agent 
unless the producer elects another agent.
    Comment: One commenter stated that it appears if an agent is 
disqualified, the agency employing the agent would be subject to 
disqualification as well. The rule also states that the insurance 
provider would be required to assign the book to another agent or 
agency. The commenter suggests the inclusion of language that, in the 
case of one agent in an agency being sanctioned, would leave the book 
of business within the same agency if that is the agency's choice or if 
one agency within an organization is sanctioned, would leave the 
business within the same organization if that is the organization's 
choice, unless the agency also committed a willful and intentional 
violation of FCIC requirement.
    Response: If an agent is disqualified, the agency employing the 
agent may only be disqualified if the agency has been named in a 
disqualification, it continues to do business with the agent or 
provides any benefits to the agent under the crop insurance program or 
any other program authorized under the Act during the period of 
disqualification. As stated above, it is the producer that has the 
first right to determine who will sell and service his or her policy. 
If no such election is made, it is the responsibility of the insurance 
provider to ensure that the policies are properly serviced. There is 
nothing in this rule that would preclude the insurance provider from 
electing to keep the policies in the same agency. However, there is 
nothing in the Act that provides an agency with the right to take over 
policies sold and serviced by one of its agents. The transfer of 
policies under such circumstances should be a contractual matter 
between the agent, agency and insurance provider. No change is made in 
response to this comment.
    Comment: One commenter had great concern that an insurance provider 
could somehow assign a violating agent's book of business to someone 
else. The commenter suggested that it may be legally impossible for an 
insurance provider to seize an agent's book of business.
    Response: Once the agent is disqualified, that agent can no longer 
sell or service the policies in its book of business or receive any 
benefits from the same or service of such policies. As stated above, 
the provision has been revised to provide the producer with the right 
to elect a different agent. However, if no such election is made, as 
the insurer of these policies, the insurance provider has an obligation 
to sell and service the policies under the SRA. FCIC is leaving it to 
the insurance provider and agent to determine how the book of business 
will be serviced during the period of disqualification. However, FCIC 
has added a provision clarifying that after the period of 
disqualification, the policies that were assigned by the insurance 
provider revert back to the previously disqualified agent unless the 
producer elects another agent.
    Comment: One commenter stated the requirement that the insurance 
provider assign them to a different agent or agency to service during 
the period of ineligibility is unfair and is a threat to the rights of 
the agent and agency. Agents and agencies own their books of business; 
it is an asset of the agent and the agency just like any other asset. 
The reassignment of that book of business would be the transferring of 
an agent's physical assets to another party.
    Response: While agents and agencies may consider the book of 
business to be an asset, it is the producer that controls who sells and 
services the policy. Therefore, as stated above, the provision was 
revised to give the producer the election to cancel and rewrite the 
policy with another agent or agency. If the producer does not transfer 
the policy, it is the insurance provider that has a contractual 
obligation to ensure that the policies are serviced. As stated above, 
FCIC is leaving it to the agent, agency and insurance provider to 
determine to whom policies are moved once the agent is disqualified. 
This rule simply reiterates that such an assignment of the policies 
must occur. Further, as stated above, FCIC has added provisions 
clarifying that after the period of disqualification, the policies that 
were assigned by the insurance provider revert back to the previously 
disqualified agent unless the producer elects another agent.
    Comment: One commenter stated that if a disqualification for an 
insurance provider results in a `time out of new sales and renewals, 
but the ability for continued service of existing policies,' they 
believe that the same standard should be held to agents and agencies, 
and not simply a confiscation of an agent's or agency's book of 
business.
    Response: Given the large number of policies in an insurance 
provider's book of business, it may not be feasible for them to be 
disqualified in the middle of a crop year without great disruption to 
the crop insurance program. All of the policies must be cancelled and 
rewritten with another insurance provider and for some insurance 
providers it could amount to hundreds of thousands of policies. At the 
end of the crop year, policies must be cancelled and rewritten with 
another insurance provider. Therefore, this rule does not allow the 
insurance provider to continue doing business, it simply provides for 
the orderly transition of the business. There is not such a large 
disruption to the program when an agent's or an agency's book of 
business must be moved. Policies do not have to be cancelled and 
rewritten because they will remain insured with the same insurance 
provider. However, as stated above, the agent's or agent's book of 
business is not confiscated. During the period of disqualification, the 
producer can elect to move to another agent and only if such election 
is not made will the insurance providers assign policies to fulfill its 
contractual obligation under the SRA. The contract between the agent 
and insurance provider can determine

[[Page 76887]]

how the business is sold and serviced if the agent is disqualified and 
such arrangements will not be disturbed by FCIC unless they violate the 
provisions of this rule by permitting the agent to continue to benefit 
from the crop insurance program during the period of disqualification. 
The provisions have also been revised to clarify that after the period 
of disqualification, the policies that were assigned by the insurance 
provider revert back to the previously disqualified agent unless the 
producer elects another agent.

I. Section 400.454(h)

    Comment: One commenter stated that 400.454(h) contains the risk of 
improperly cumulative and excessive penalties.
    Response: There is nothing in section 515(h) of the Act that states 
that the administrative remedies contained therein are the only 
remedies for the proscribed conduct. There are other civil, criminal 
and possibly administrative remedies available. If multiple remedies 
are applied to a person, that person has the right to challenge the 
application of those remedies as unconstitutional.

Section 400.457 Program Fraud Civil Remedies Act

    Comment: One commenter stated that although the rule does not 
revise Sec.  400.457(a), the proposed rule renders this section 
inaccurate. This section is not in accordance with the Program Fraud 
Civil Remedies Act of 1986, because the standards set forth in 400.454 
differ from those set forth in 7 CFR 1.302 and 1.335.
    Response: As stated above, FCIC has revised this rule to make it 
consistent with 7 CFR 1.302 and 1.335 to the maximum extent 
practicable. In any case, before sanctions can be imposed under both 
sections 515(h) of the Act and the Program Fraud Civil Remedies Act, 
all the requirements for the imposition of sanctions under each must be 
met.
    Comment: Several commenters stated that the rule must be clear so 
that ordinary people can understand what conduct is prohibited and 
provides sufficient guidance to those who may be subject to the 
penalties. Several commenters expressed concern with the broad and 
ambiguous language of the rule. Unintentional errors can occur. 
Specific and defined consideration of the factors used to determine 
guilt or innocence is needed to be fair to alleged offenders. One 
commenter stated that FCIC must clear up any and all ambiguities under 
the proposed rule so all covered persons receive proper notice of their 
legal responsibilities. One commenter stated that the rule does not 
adequately define certain key terms that will provide adequate notice 
of prohibited conduct in the future. For example, the rule provides 
sanctions against persons who `submit' or `provide' false information 
related to the Federal crop insurance program. These terms do not 
provide adequate notice of prohibited conduct to agents or others who 
merely forward information or forms supplied or completed by others, 
but who submit the information and forms to insurance provider.
    Response: In response to these and other comments, FCIC has added 
definitions and revised provisions to increase the clarity of the rule. 
Responses to these comments will also provide guidance. With respect to 
the terms ``submit'' and ``provide,'' the term submit is not used in 
the rule. The rule only refers to willfully and intentionally providing 
false or inaccurate information, consistent with section 515(h) of the 
Act, which uses the term ``provides.'' However, FCIC has revised the 
rule to add a definition of ``provides'' but without other specific 
examples, FCIC is unsure of what ambiguities the commenters are 
referring to.

List of Subjects in 7 CFR Parts 400, 407, and 457

    Administrative practice and procedures; Administrative remedies for 
non-compliance.

Final Rule

0
Accordingly, as set forth in the preamble, the Federal Crop Insurance 
Corporation amends 7 CFR parts 400, 407 and 457, as follows:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

0
1. The authority citation for 7 CFR 400, subpart R is revised to read 
as follows:

    Authority: 7 U.S.C. 1506(l), 1506(o), and 7 U.S.C. 1515(h)

Subpart R--Administrative Remedies for Non-Compliance

0
2. Revise the heading for subpart R to read as set forth above.

0
3. Revise Sec.  400.451 to read as follows:


Sec.  400.451  General.

    (a) FCIC has implemented a system of administrative remedies in its 
efforts to ensure program compliance and prevent fraud, waste, and 
abuse within the Federal crop insurance program. Such remedies include 
civil fines and disqualifications under the authority of section 515(h) 
of the Act (7 U.S.C. 1515(h)); government-wide suspension and debarment 
under the authority of 48 CFR part 9, 48 CFR part 409, and 7 CFR part 
3017; and civil fines and assessments under the authority of the 
Program Fraud Civil Remedies Act (31 U.S.C. 3801-3812).
    (b) The provisions of this subpart apply to all participants in the 
Federal crop insurance program, including but not limited to producers, 
agents, loss adjusters, approved insurance providers and their 
employees or contractors, as well as any other persons who may provide 
information to a program participant and meet the elements for 
imposition of one or more administrative remedies contained in this 
subpart.
    (c) Any remedial action taken pursuant to this subpart is in 
addition to any other actions specifically provided in applicable crop 
insurance policies, contracts, reinsurance agreements, or other 
applicable statutes and regulations.
    (d) This rule is applicable to any violation occurring on and after 
January 20, 2009.
    (e) The purpose of the remedial actions authorized in this subpart 
are for the protection of the public interest from potential harm from 
persons who have abused the Federal crop insurance program, maintaining 
program integrity, and fostering public confidence in the program.

0
4. Revise Sec.  400.452 to read as follows:


Sec.  400.452  Definitions.

    For purposes of this subpart:
    Act. Has the same meaning as the term in section 1 of the Common 
Crop Insurance Policy Basic Provisions (7 CFR 457.8).
    Affiliate. Persons are affiliates of each other if, directly or 
indirectly, either one controls or has the power to control the other, 
or, a third person controls or has the power to control both. Indicia 
of control include, but are not limited to: interlocking management or 
ownership, identity of interests among family members, shared 
facilities and equipment, common use of employees, or a business entity 
organized following the disqualification, suspension or debarment of a 
person which has the same or similar management, ownership, or 
principal employees as the disqualified, suspended, debarred, 
ineligible, or voluntarily excluded person.
    Agency. The person authorized by an approved insurance provider, or 
its designee, to sell and service a crop

[[Page 76888]]

insurance policy under the Federal crop insurance program.
    Agent. Has the same meaning as the term in 7 CFR 400.701.
    Agricultural commodity. Has the same meaning as the term in section 
1 of the Common Crop Insurance Policy Basic Provisions (7 CFR 457.8).
    Approved insurance provider. Has the same meaning as the term in 7 
CFR 400.701.
    Benefit. Any advantage, preference, privilege, or favorable 
consideration a person receives from another person in exchange for 
certain acts or considerations. A benefit may be monetary or non-
monetary.
    FCIC. Has the same meaning as the term in 7 CFR 400.701.
    Key employee. Any person with primary management or supervisory 
responsibilities or who has the ability to direct activities or make 
decisions regarding the crop insurance program.
    Knows or has reason to know. When a person, with respect to a claim 
or statement:
    (1)(i) Has actual knowledge that the claim or statement is false, 
fictitious, or fraudulent;
    (ii) Acts in deliberate ignorance of the truth or falsity of the 
claim or statement; or
    (iii) Acts in reckless disregard of the truth or falsity of the 
claim or statement; and
    (2) No proof of specific intent is required.
    Managing General Agent. Has the same meaning as the term in 7 CFR 
400.701.
    Material. A violation that causes or has the potential to cause a 
monetary loss to the crop insurance program or it adversely affects 
program integrity, including but not limited to potential harm to the 
program's reputation or allowing persons to be eligible for benefits 
they would not otherwise be entitled.
    Participant. Any person who obtains any benefit that is derived in 
whole or in part from funds paid by FCIC to the approved insurance 
provider or premium paid by the producer. Participants include but are 
not limited to producers, agents, loss adjusters, agencies, managing 
general agencies, approved insurance providers, and any person 
associated with the approved insurance provider through employment, 
contract, or agreement.
    Person. An individual, partnership, association, corporation, 
estate, trust or other legal entity, any affiliate or principal 
thereof, and whenever applicable, a State or political subdivision or 
agency of a State. ``Person'' does not include the United States 
Government or any of its agencies.
    Policy. Has the same meaning as the term in section 1 of the Common 
Crop Insurance Policy Basic Provisions (7 CFR 457.8).
    Preponderance of the evidence. Proof by information that, when 
compared with the opposing evidence, leads to the conclusion that the 
fact at issue is probably more true than not.
    Principal. A person who is an officer, director, owner, partner, 
key employee, or other person within an entity with primary management 
or supervisory responsibilities over the entity's federal crop 
insurance activities; or a person who has a critical influence on or 
substantive control over the federal crop insurance activities of the 
entity.
    Producer. A person engaged in producing an agricultural commodity 
for a share of the insured crop, or the proceeds thereof.
    Provides. Means to make available, supply or furnish with. The term 
includes any transmission of the information from one person to another 
person. For example, a producer writes information on forms and gives 
it to the agent and the agent transmits that information to the 
insurance provider. In both instances, the information is ``provided'' 
for the purpose of this rule.
    Reinsurance agreement. Has the same meaning as the term in 7 CFR 
400.161, except that such agreement is only between FCIC and the 
approved insurance provider.
    Requirement of FCIC. Includes, but is not limited to, formal 
communications, such as a regulation, procedure, policy provision, 
reinsurance agreement, memorandum, bulletin, handbook, manual, finding, 
directive, or letter, signed or issued by a person authorized by FCIC 
to provide such communication on behalf of FCIC, that requires a 
particular participant or group of participants to take a specific 
action or to cease and desist from a taking a specific action (e-mails 
will not be considered formal communications although they may be used 
to transmit a formal communication). Formal communications that contain 
a remedy in such communication in the event of a violation of its terms 
and conditions will not be considered a requirement of FCIC unless such 
violation arises to the level where remedial action is appropriate. 
(For example, multiple violations of the same provision in separate 
policies or procedures or multiple violations of different provisions 
in the same policy or procedure.)
    Violation. Each act or omission by a person that satisfies all 
required elements for the imposition of a disqualification or a civil 
fine contained in Sec.  400.454.
    Willful and intentional. To provide false or inaccurate information 
with the knowledge that the information is false or inaccurate at the 
time the information is provided; the failure to correct the false or 
inaccurate information when its nature becomes known to the person who 
made it; or to commit an act or omission with the knowledge that the 
act or omission is not in compliance with a ``requirement of FCIC'' at 
the time the act or omission occurred. No showing of malicious intent 
is necessary.

0
5. Revise Sec.  400.454 to read as follows:


Sec.  400.454  Disqualification and civil fines.

    (a) Before any disqualification or civil fine is imposed, FCIC will 
provide the affected participants and other persons with notice and an 
opportunity for a hearing on the record in accordance with 7 CFR part 
1, subpart H.
    (1) Proceedings will be initiated when the Manager of FCIC files a 
complaint with the Hearing Clerk, United States Department of 
Agriculture.
    (2) Disqualifications become effective:
    (i) On the date specified in the order issued by the Administrative 
Law Judge or Judicial Officer, as applicable, or if no date is 
specified in the order, the date that the order was issued.
    (ii) With respect to a settlement agreement with FCIC, the date 
contained in the settlement agreement or, if no date is specified, the 
date that such agreement is executed by FCIC.
    (3) Disqualification and civil fines may only be imposed if a 
preponderance of the evidence shows that the participant or other 
person has met the standards contained in Sec.  400.454(b). FCIC has 
the burden of proving that the standards in Sec.  400.454(b) have been 
met.
    (4) Disqualification and civil fines may be imposed regardless of 
whether FCIC or the approved insurance provider has suffered any 
monetary losses. However, if there is no monetary loss, 
disqualification will only be imposed if the violation is material in 
accordance with Sec.  400.454(c).
    (b) Disqualification and civil fines may be imposed on any 
participant or person who willfully and intentionally:
    (1) Provides any false or inaccurate information to FCIC or to any 
approved insurance provider with respect to a policy or plan of 
insurance authorized under the Act either through action or omission to 
act when there is knowledge that false or inaccurate information is or 
will be provided; or

[[Page 76889]]

    (2) Fails to comply with a requirement of FCIC.
    (c) When imposing any disqualification or civil fine:
    (1) The gravity of the violation must be considered when 
determining:
    (i) Whether to disqualify a participant or other person;
    (ii) The amount of time that a participant or other person should 
be disqualified;
    (iii) Whether to impose a civil fine; and
    (iv) The amount of a civil fine that should be imposed.
    (2) The gravity of the violation includes consideration of whether 
the violation was material and if it was material:
    (i) The number or frequency of incidents or duration of the 
violation;
    (ii) Whether there is a pattern or prior history of violation;
    (iii) Whether and to what extent the person planned, initiated, or 
carried out the violation;
    (iv) Whether the person has accepted responsibility for the 
violation and recognizes the seriousness of the misconduct that led to 
the cause for disqualification or civil fine;
    (v) Whether the person has paid all civil and administrative 
liabilities for the violation;
    (vi) Whether the person has cooperated fully with FCIC (In 
determining the extent of cooperation, FCIC may consider when the 
cooperation began and whether the person disclosed all pertinent 
information known to that person at the time);
    (vii) Whether the violation was pervasive within the organization;
    (viii) The kind of positions held by the persons involved in the 
violation;
    (ix) Whether the organization took prompt, appropriate corrective 
action or remedial measures, such as establishing ethics training and 
implementing programs to prevent recurrence;
    (x) Whether the principals of the organization tolerated the 
offense;
    (xi) Whether the person brought the violation to the attention of 
FCIC in a timely manner;
    (xii) Whether the organization had effective standards of conduct 
and internal control systems in place at the time the violation 
occurred;
    (xiii) Whether the organization has taken appropriate disciplinary 
action against the persons responsible for the violation;
    (xiv) Whether the organization had adequate time to eliminate the 
violation that led to the cause for disqualification or civil fine;
    (xv) Other factors that are appropriate to the circumstances of a 
particular case.
    (3) The maximum term of disqualification and civil fines will be 
imposed against:
    (i) Participants and other persons, except insurance providers who:
    (A) Commit multiple violations in the same crop year or over 
several crop years; or
    (B) Commit a single violation but such violation results in an 
overpayment of more than $100,000;
    (ii) Approved insurance providers who:
    (A) Commit a single violation resulting in an overpayment in excess 
of $100,000; and
    (B) Commit multiple acts of violations resulting in an overpayment 
in excess of $500,000; and
    (iii) Any participant or person who commits such other action or 
omission of so serious a nature that imposition of the maximum is 
appropriate.
    (d) With respect to the imputing of conduct:
    (1) The conduct of any officer, director, shareholder, partner, 
employee, or other individual associated with an organization, in 
violation of Sec.  400.454(b) may be imputed to that organization when 
such conduct occurred in connection with the individual's performance 
of duties for or on behalf of that organization, or with the 
organization's knowledge, approval or acquiescence. The organization's 
acceptance of the benefits derived from the violation is evidence of 
knowledge, approval or acquiescence.
    (2) The conduct of any organization in violation of Sec.  
400.454(b) may be imputed to an individual, or from one individual to 
another individual, if the individual to whom the improper conduct is 
imputed either participated in, knows, or had reason to know of such 
conduct.
    (3) The conduct of one organization in violation of Sec.  
400.454(b) may be imputed to another organization when such conduct 
occurred in connection with a partnership, joint venture, joint 
application, association or similar arrangement, or when the 
organization to whom the improper conduct is imputed has the power to 
direct, manage, control or influence the activities of the organization 
responsible for the improper conduct. Acceptance of the benefits 
derived from the conduct is evidence of knowledge, approval or 
acquiescence.
    (4) If such conduct is imputed, the person to whom the conduct is 
imputed to may be subject to the same disqualification and civil fines 
as the person from whom the conduct is imputed. The factors contained 
in Sec.  400.454(c)(2) will be taken into consideration with respect to 
the person to whom the conduct is being imputed.
    (e) With respect to disqualifications:
    (1) If a person is disqualified and that person is a:
    (i) Producer, the producer will be precluded from receiving any 
monetary or non-monetary benefit provided under all of the following 
authorities, or their successors:
    (A) The Act;
    (B) The Farm Security and Rural Investment Act of 2002 (7 U.S.C. 
7333 et seq.) or any successor statute;
    (C) The Agricultural Act of 1949 (7 U.S.C. 1421 et seq.) or any 
successor statute;
    (D) The Commodity Credit Corporation Charter Act (15 U.S.C. 714 et 
seq.) or any successor statute;
    (E) The Agricultural Adjustment Act of 1938 (7 U.S.C. 1281 et seq.) 
or any successor statute;
    (F) Title XII of the Food Security Act of 1985 (16 U.S.C. 3801 et 
seq.) or any successor statute;
    (G) The Consolidated Farm and Rural Development Act (7 U.S.C. 1921, 
et seq.) or any successor statute; and
    (H) Any federal law that provides assistance to the producer of an 
agricultural commodity affected by a crop loss or decline in the prices 
of agricultural commodities.
    (ii) Participant or other person, other than a producer, such 
participant or person will be precluded from participating in any way 
in the Federal crop insurance program and receiving any monetary or 
non-monetary benefit under the Act.
    (2) With respect to the term of disqualification:
    (i) The minimum term will be not less than one year from the 
effective date determined in Sec.  400.454(a)(2);
    (ii) The maximum term will be not more than five years from the 
effective date determined in Sec.  400.454(a)(2); and
    (iii) Disqualification is to be imposed only in one-year 
increments, up to the maximum five years.
    (3) Once a disqualification becomes final, the name, address, and 
other identifying information of the participant or other person shall 
be entered into the Ineligible Tracking System (ITS) maintained by FCIC 
in accordance with 7 CFR part 400, subpart U, and this information 
along with a list of the programs that the person is disqualified from 
shall be promptly reported to the General Services Administration for 
listing in the Excluded Parties List System (EPLS) in accordance with 7 
CFR part 3017, subpart E.
    (i) It is a participant's responsibility to periodically review the 
ITS and EPLS to

[[Page 76890]]

determine those participants and other persons who have been 
disqualified.
    (ii) No participant may conduct business with a disqualified 
participant or other person if such business directly relates to the 
Federal crop insurance program, or if, through the business 
relationship, the disqualified participant or other person will derive 
any monetary or non-monetary benefit from a program administered under 
the Act.
    (iii) If a participant or other person does business with a 
disqualified participant or other person, such participant may be 
subject to disqualification under this section.
    (iv) Continuing to make payments to a disqualified person to 
fulfill pre-existing contractual or statutory obligations after the 
business relationship is terminated will not be considered as doing 
business with a disqualified person unless such payment is used as a 
means to circumvent the disqualification process.
    (f) With respect to civil fines:
    (1) A civil fine may be imposed for each violation.
    (2) The amount of such civil fine shall not exceed the greater of:
    (i) The amount of monetary gain, or value of the benefit, obtained 
as a result of the false or inaccurate information provided, or the 
amount obtained as a result of noncompliance with a requirement of 
FCIC; or
    (ii) $10,000.
    (3) Civil fines are debts owed to FCIC.
    (i) A civil fine that is either imposed under with this subpart, or 
agreed to through an executed settlement agreement with FCIC, must be 
paid by the specified due date. If the due date is not specified in the 
order issued by the Administrative Law Judge or Judicial Officer, as 
applicable, or the settlement agreement, it shall be 30 days after the 
date the order was issued or the settlement agreement signed by FCIC.
    (ii) Any civil fine imposed under this section is in addition to 
any debt that may be owed to FCIC or to any approved insurance 
provider, such an overpaid indemnity, underpaid premium, or other 
amounts owed.
    (iii) FCIC, in its sole discretion, may reduce or otherwise settle 
any civil fine imposed under this section whenever it considers it 
appropriate or in the best interest of the USDA.
    (4) The ineligibility procedures established in 7 CFR part 400, 
subpart U are not applicable to ineligibility determinations made under 
this section for nonpayment of civil fines.
    (5) If a civil fine has been imposed and the person has not made 
timely payment for the total amount due, the person is ineligible to 
participate in the Federal crop insurance program until the amount due 
is paid in full.
    (g) With respect to any person that has been disqualified or is 
otherwise ineligible due to non-payment of civil fines in accordance 
with Sec.  400.454(f):
    (1) With respect to producers:
    (i) All existing insurance policies will automatically terminate as 
of the next termination date that occurs during the period of 
disqualification and while the civil fine remains unpaid;
    (ii) No new policies can be purchased, and no current policies can 
be renewed, between the date that the producer is disqualified and the 
date that the disqualification ends; and
    (iii) New application for insurance cannot be made for any 
agricultural commodity until the next sales closing date after the 
period of disqualification has ended and the civil fine is paid in 
full.
    (2) With respect to all other persons:
    (i) Such person may not be involved in any function related to the 
Federal crop insurance program during the disqualification or 
ineligibility period (including the sale, service, adjustment, data 
transmission or storage, reinsurance, etc. of any crop insurance 
policy) or receive any monetary or non-monetary benefit from a program 
administered under the Act.
    (ii) If the person is an agent or insurance agency, the producers 
may cancel their policies sold and serviced by the disqualified agent 
and rewrite the policy with another agent. If the producer does not 
cancel and rewrite the policy with another agent, the approved 
insurance provider must assign the policies to a different agent or 
agency to service during the period of disqualification or 
ineligibility. Policies that have been assigned to another agent or 
agency by the insurance provider will revert back to the disqualified 
agent or agency after the period of disqualification has ended provided 
all civil fines are paid in full and the producer does not cancel and 
rewrite the policy with a different agent or agency;
    (iii) If the person is an approved insurance provider, the approved 
insurance provider shall not sell, or authorize to be sold, any new 
policies or may not renew, or authorize the renewal of, existing 
policies, as determined by FCIC, during the period of disqualification 
or ineligibility. Nothing in this provision affects the approved 
insurance provider's responsibilities with respect to the service of 
existing policies.
    (h) Imposition of disqualification or a civil fine under this 
section is in addition to any other administrative or legal remedies 
available under this section or other applicable law including, but not 
limited to, debarment and suspension.

0
6. Revise Sec.  400.455 to read as follows:


Sec.  400.455  Governmentwide debarment and suspension (procurement).

    (a) For all transactions undertaken pursuant to the Federal 
Acquisition Regulations, FCIC will proceed under 48 CFR part 9, subpart 
9.4 or 48 CFR part 409 when taking action to suspend or debar persons 
involved in such transactions, except that the authority to suspend or 
debar under these provisions will be reserved to the Manager of FCIC, 
or the Manager's designee.
    (b) Any person suspended or debarred under the provisions of 48 CFR 
part 9, subpart 9.4 or 48 CFR part 409 will not be eligible to contract 
with FCIC or the Risk Management Agency and will not be eligible to 
participate in or receive any benefit from any program under the Act 
during the period of ineligibility. This includes, but is not limited 
to, being employed by or contracting with any approved insurance 
provider that sells, services, or adjusts policies offered under the 
authority of the Act. FCIC may waive this provision if it is satisfied 
that the person who employs the suspended or debarred person has taken 
sufficient action to ensure that the suspended or debarred person will 
not be involved, in any way, with FCIC or receive any benefit from any 
program under the Act.

0
7. Revise Sec.  400.456 to read as follows:


Sec.  400.456  Governmentwide debarment and suspension 
(nonprocurement).

    (a) FCIC will proceed under 7 CFR part 3017 when taking action to 
suspend or debar persons involved in non-procurement transactions.
    (b) Any person suspended or debarred under the provisions of 7 CFR 
part 3017, will not be eligible to contract with FCIC or the Risk 
Management Agency and will not be eligible to participate in or receive 
any benefit from any program under the Act during the period of 
ineligibility. This includes, but is not limited to, being employed by 
or contracting with any approved insurance provider, or its 
contractors, that sell, service, or adjust policies either insured or 
reinsured by FCIC. FCIC may waive this provision if it is satisfied 
that the approved insurance provider or contractors have taken 
sufficient action to ensure that the suspended or debarred person will 
not be involved in any way with the Federal crop insurance program or 
receive any benefit from any program under the Act.

[[Page 76891]]

    (c) The Manager, FCIC, shall be the debarring and suspending 
official for all debarment or suspension proceedings undertaken by FCIC 
under the provisions of 7 CFR part 3017.

0
8. Amend Sec.  400.457 by adding a new paragraph (d) to read as 
follows:


Sec.  400.457  Program Fraud Civil Remedies Act.

* * * * *
    (d) Civil penalties and assessments imposed pursuant to this 
section are in addition to any other remedies that may be prescribed by 
law or imposed under this subpart.


Sec.  400.458  [Amended]

0
9. Amend Sec.  400.458 by removing paragraph (b)(2), adding an ``or'' 
at the end of paragraph (b)(1) and redesignating paragraph (b)(3) as 
paragraph (b)(2).


Sec.  400.459  [Removed]

0
10. Remove Sec.  400.459.

PART 407--GROUP RISK PLAN OF INSURANCE REGULATIONS

0
11. The authority citation for 7 CFR part 407 continues to read as 
follows:

    Authority: 7 U.S.C. 1506(l), 1506(o).

0
12. Amend Sec.  407.9, Group Risk Plan Common Policy, by adding a new 
section 22 at the end to read as follows:


Sec.  407.9  Group risk plan common policy.

* * * * *
    22. Remedial Sanctions
    If you willfully and intentionally provide false or inaccurate 
information to us or FCIC or you fail to comply with a requirement of 
FCIC, in accordance with 7 CFR part 400, subpart R, FCIC may impose on 
you:
    (a) A civil fine for each violation in an amount not to exceed the 
greater of:
    (1) The amount of the pecuniary gain obtained as a result of the 
false or inaccurate information provided or the noncompliance with a 
requirement of this title; or
    (2) $10,000; and
    (b) A disqualification for a period of up to 5 years from receiving 
any monetary or non-monetary benefit provided under each of the 
following:
    (1) Any crop insurance policy offered under the Act;
    (2) The Farm Security and Rural Investment Act of 2002 (7 U.S.C. 
7333 et seq.);
    (3) The Agricultural Act of 1949 (7 U.S.C. 1421 et seq.);
    (4) The Commodity Credit Corporation Charter Act (15 U.S.C. 714 et 
seq.);
    (5) The Agricultural Adjustment Act of 1938 (7 U.S.C. 1281 et 
seq.);
    (6) Title XII of the Food Security Act of 1985 (16 U.S.C. 3801 et 
seq.);
    (7) The Consolidated Farm and Rural Development Act (7 U.S.C. 1921 
et seq.); and
    (8) Any federal law that provides assistance to a producer of an 
agricultural commodity affected by a crop loss or a decline in the 
prices of agricultural commodities.

PART 457--COMMON CROP INSURANCE REGULATIONS

0
13. The authority citation for 7 CFR part 457 is revised to read as 
follows:

    Authority: 7 U.S.C. 1506(l), 1506(o).

0
14. Amend Sec.  457.8, Common Crop Insurance Policy Basic Provisions, 
by adding a new paragraph (e) at the end of section 27 to read as 
follows:


Sec.  457.8  The application and policy.

* * * * *
    27. Concealment, Misrepresentation or Fraud.
* * * * *
    (e) If you willfully and intentionally provide false or inaccurate 
information to us or FCIC or you fail to comply with a requirement of 
FCIC, in accordance with 7 CFR part 400, subpart R, FCIC may impose on 
you:
    (1) A civil fine for each violation in an amount not to exceed the 
greater of:
    (i) The amount of the pecuniary gain obtained as a result of the 
false or inaccurate information provided or the noncompliance with a 
requirement of this title; or
    (ii) $10,000; and
    (2) A disqualification for a period of up to 5 years from receiving 
any monetary or non-monetary benefit provided under each of the 
following:
    (i) Any crop insurance policy offered under the Act;
    (ii) The Farm Security and Rural Investment Act of 2002 (7 U.S.C. 
7333 et seq.);
    (iii) The Agricultural Act of 1949 (7 U.S.C. 1421 et seq.);
    (iv) The Commodity Credit Corporation Charter Act (15 U.S.C. 714 et 
seq.);
    (v) The Agricultural Adjustment Act of 1938 (7 U.S.C. 1281 et 
seq.);
    (vi) Title XII of the Food Security Act of 1985 (16 U.S.C. 3801 et 
seq.);
    (vii) The Consolidated Farm and Rural Development Act (7 U.S.C. 
1921 et seq.); and
    (viii) Any federal law that provides assistance to a producer of an 
agricultural commodity affected by a crop loss or a decline in the 
prices of agricultural commodities.
* * * * *

    Signed in Washington, DC on December 12, 2008.
Eldon Gould,
Manager, Federal Crop Insurance Corporation.
[FR Doc. E8-30073 Filed 12-17-08; 8:45 am]
BILLING CODE 3410-08-P