[Federal Register Volume 75, Number 70 (Tuesday, April 13, 2010)]
[Rules and Regulations]
[Pages 18760-18764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8378]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 89

RIN 0991-AB60


Organizational Integrity of Entities That Are Implementing 
Programs and Activities Under the Leadership Act

AGENCY: U.S. Department of Health and Human Services.

ACTION: Final rule.

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SUMMARY: The Department is issuing a final rule establishing the 
organizational integrity requirements for Federal funding recipients 
under the United States Leadership Against HIV/AIDS, Tuberculosis, and 
Malaria Act of 2003 (Leadership Act). This rule requires that funding 
announcements and agreements with funding recipients include a clause 
that states that the recipient is opposed to prostitution and sex 
trafficking because of the psychological and physical risks they pose 
for women, men and children. This rule also modifies the requirements 
for recipient-affiliate separation and eliminates the requirement for 
an additional certification by funding recipients.

DATES: This rule is effective May 13, 2010.

FOR FURTHER INFORMATION CONTACT: John Monahan, Office of Global Health 
Affairs, Hubert H. Humphrey Building, Room 639H, 200 Independence 
Avenue, SW., Washington, DC 20201, Tel: 202-690-6174, E-mail: 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

A. Statutory Background

    Congress enacted the United States Leadership Against HIV/AIDS, 
Tuberculosis, and Malaria Act of 2003 (``Leadership Act'') in May 2003. 
Public Law 108-25 [22 U.S.C. 7601-7682]. The Leadership Act contains 
limitations on the use of funds provided to carry out HIV/AIDS 
activities under the Act. Subsection 7631(f) prohibits the use of 
Leadership Act HIV/AIDS funds ``to provide assistance to any group or 
organization that does not have a policy explicitly opposing 
prostitution and sex trafficking.'' Subsection 7631(f) was amended in 
2004 to exempt certain public international organizations. Consolidated 
Appropriations Act of 2004, Public Law 108-199, Div. D, Title II 
(2004).
    The United States government is opposed to prostitution and sex 
trafficking. In enacting the Leadership Act, Congress specifically 
found ``Prostitution and other sexual victimization are degrading to 
women and children and it should be the policy of the United States to 
eradicate such practices. The sex industry, the trafficking of 
individuals into such industry, and sexual violence are additional 
causes of and factors in the spread of the HIV/AIDS epidemic.'' 
Leadership Act Sec.  2(23) Public Law 108-25. Congressional hearings at 
the time of the Act showed a high incidence of HIV among prostitutes 
and that prostitution fueled the demand for sex trafficking. 
Accordingly, Congress unambiguously called for the elimination of 
prostitution and sex-trafficking as part of the United States' fight 
against HIV/AIDS.
    Section 301(f) [22 U.S.C. 7631(f)] of the Leadership Act requires 
that funding recipients have a policy explicitly opposing prostitution 
and sex trafficking. Additionally, recipients of Leadership Act funds 
cannot engage in activities that are inconsistent with their opposition 
to prostitution and sex trafficking.
    Congress did not dictate the means by which the Department would 
implement the policy and the Congressional intent of the Act was not to 
overburden applicants with unnecessary requirements. For example, 
during legislative debate on the Leadership Act, in response to a 
question from Senator Leahy on the Senate floor regarding section 
301(f), Senator Frist stated that ``a statement in the contract or 
grant agreement between the U.S. Government and such organization that 
the organization is opposed to the practices of prostitution and sex 
trafficking because of the psychological and physical risks they pose 
for women * * * would satisfy the intent of the provision.'' 149 CONG. 
REC. S6,457 (daily ed. May 15, 2003) (statement of Sen. Frist).

B. Litigation and Regulatory Background

    The Leadership Act was challenged on constitutional grounds in two 
separate lawsuits after its enactment. In a case filed in the U.S. 
District Court for the District of Columbia, plaintiffs claimed the 
anti-prostitution provision compelled speech when the organization had 
no policy either opposing or supporting prostitution. DKT Int'l v. 
United States Agency for Int'l Dev. (USAID), 435 F. Supp. 2d 5 (D.D.C. 
2006). Ultimately, the U.S. Court of Appeals for the District of 
Columbia Circuit upheld the anti-prostitution provision, holding that 
the government had a legitimate interest in ensuring that organizations 
chosen to communicate its particular viewpoint did so in an efficient 
and effective fashion. DKT Int'l v. USAID, 477 F.3d 758 (DC Cir. 2007).

[[Page 18761]]

In upholding this provision, the DC Circuit relied in part on the fact 
that nothing prevented the plaintiff from itself remaining neutral and 
setting up a subsidiary that had a policy opposing prostitution to 
receive government funds.
    A second case was filed in the U.S. District Court for the Southern 
District of New York, which granted an injunction against the 
Government on the basis that the statute was unconstitutional because 
it did not leave open ``adequate alternative channels for 
communication.'' Alliance for Open Soc'y Int'l (AOSI) v. USAID, 430 F. 
Supp. 2d 222 (S.D.N.Y. 2006). On appeal, the U.S. Court of Appeals for 
the Second Circuit remanded the case, in light of newly issued guidance 
by the Government providing for organizations to work with affiliates 
that would not be subject to the Leadership Act's requirements. AOSI v. 
USAID, 254 Fed. Appx. 843 (2d Cir. 2007). Upon remand, however, the 
District Court maintained the injunction and allowed additional 
plaintiffs to join the suit. AOSI v. USAID, 570 F. Supp. 2d 533 
(S.D.N.Y. 2008). The Government has appealed that decision.
    Prior to and concurrent with the litigation, the Department took a 
number of steps to implement the prostitution policy requirement under 
the statute. By December 2003, HHS had begun including a requirement in 
all of its grant and cooperative agreement funding announcements that 
all recipients under the Leadership Act of HIV/AIDS funds have a policy 
explicitly opposing prostitution and sex trafficking. On July 23, 2007, 
HHS published ``Organizational Integrity Guidance'' in the Federal 
Register to clarify the scope of the policy requirement. The guidance 
allowed Leadership Act HIV/AIDS funding recipients to have 
relationships with organizations that engage in activities inconsistent 
with a policy against prostitution and sex trafficking. 72 FR 41,076 
(7/26/2007). HHS followed the issuance of this guidance with a notice 
of proposed rulemaking (NPRM) on April 17, 2008, 73 FR 29,096, which 
initiated the notice-and-comment rulemaking process. The final rule was 
published on December 24, 2008, 73 FR 78,997, corrected on January 16, 
2009, 74 FR 2,888 (codified at 45 CFR part 89), and took effect on 
January 20, 2009. The final rule established the legal, financial, and 
organizational standards for determining whether a funding recipient 
had objective integrity and independence from an affiliated 
organization that engaged in activities inconsistent with a policy 
opposing prostitution and sex trafficking. The final rule also required 
all Leadership Act HIV/AIDS funding recipients, including sub-
recipients, to certify compliance with the rule.
    On November 23, 2009, the Department again issued a notice of 
proposed rulemaking to modify the final rule of January 20, 2009. 74 FR 
61096 (11/23/2009). The proposed amendment to the present rule modifies 
the criteria for evaluating the separation between recipients and 
affiliated organizations, while complying with the statutory 
requirement regarding opposition to prostitution and sex trafficking. 
It is essential to the Leadership Act that recipients of funds who 
implement HIV/AIDS programs and activities do not create confusion as 
to the U.S. Government's message opposing prostitution and sex 
trafficking by undertaking activities or advocating positions that 
conflict with this policy. However, as noted above, the Department has 
determined that the Congressional intent of the Leadership Act can be 
effectuated through the application of standards that allow more 
flexibility for funding recipients than the present guidelines.

II. Description of Final Rule and Response to Comments

    The Department received twenty-seven comments in response to the 
proposed rule, including one comment filed after the close of the 
comment period which was also considered. Comments came from 
individuals and organizations both opposed to and in favor of changes 
to the previous rule. Several comments were not responsive to the 
proposed rule and therefore are not addressed. Several commenters 
stated the policy requirement was inconsistent with the Leadership Act 
or improperly conflated prostitution with sex trafficking. However, the 
final rule is consistent with section 301(f) of the Act which requires 
organizations receiving funds to have a policy opposing ``prostitution 
and sex trafficking.'' Other comments are discussed under applicable 
headings.

Section 89.1 Applicability

    This section provides that the policy requirement applies to all 
funding recipients not exempted by the Leadership Act. Currently, those 
organizations exempted are the Global Fund to Fight AIDS, Tuberculosis, 
and Malaria, the World Health Organization, the International AIDS 
Vaccine Initiative and any other United Nations agency.
    This section also states what is required of HIV/AIDS funding 
recipients under the Leadership Act. The Department shall include in 
any HIV/AIDS public funding announcement under the Leadership Act the 
requirement that recipients agree that they are opposed to the 
practices of prostitution and sex trafficking because of the 
psychological and physical risks they pose for women, men and children. 
This statement will also be included in any Leadership Act HIV/AIDS 
funding instrument entered into with the recipient. As explained, the 
Department believes this statement is consistent with the anti-
prostitution provision and the Congressional intent behind it, as well 
as other goals of the Act.
    The Department will work with the Department of State and with 
other agencies implementing the Leadership Act to ensure consistent 
application of its requirements.

Section 89.2 Definitions

    This section defines terms used in this rule. It retains several 
terms from the previous iteration of the rule such as ``commercial sex 
act'' and ``prostitution.'' However, given the regulation now requires 
the anti-prostitution statement only in the announcement and the 
awarding instrument to the ``recipient,'' it deletes the terms ``prime 
recipient'' and ``subrecipient.'' A definition of ``recipient'' that 
mirrors the former ``prime recipient,'' directly funded entity, is 
included. While the section deletes the definition of subrecipient, any 
organization receiving Leadership Act HIV/AIDS funds must comply with 
the statutory requirements.
    Several commenters objected to the lack of definition for a number 
of terms such as ``affiliate,'' ``restricted activities,'' and ``to the 
extent practicable.'' As explained below, the Department's commitment 
to a case-by-case approach in this area will allow flexibility based on 
the circumstances presented. Some organizations may be better able to 
separate themselves from an affiliate ``in the circumstances.'' 
Conditions in some countries may make it difficult for organizations to 
meet certain factors relevant to determining whether sufficient 
separation exists. Therefore, any attempt to strictly prescribe the 
degree of separation would undermine the purpose of the regulation.
    Similarly, the Department does not define the term ``affiliated 
organizations.'' In common usage, ``affiliate'' means ``to bring into 
close connection as a member or branch.'' Merriam-Webster's Collegiate 
Dictionary at 21 (11th ed. 2007). Legal affiliation is only one aspect 
of this relationship. The use of separate personnel, accounting,

[[Page 18762]]

timekeeping, space and identifying signage are also factors, among 
others. In determining whether there is sufficient separation, the 
Department will not base its decision solely on whether an entity is a 
legally separate ``affiliate,'' but instead will consider the 
likelihood that the degree of separation between a recipient of 
Leadership Act HIV/AIDS funds and other connected organizations that 
are not required to have a policy opposing prostitution and sex 
trafficking will not undermine or confuse the Government's position in 
opposition to prostitution and sex trafficking.
    As noted by multiple comments, the proposed rule did not define 
``restricted activities.'' Several comments expressed concerns that 
organizations that work with the victims of prostitution and sex 
trafficking would stop providing services that could prevent HIV/AIDS 
because of their fear that the Government would determine the 
activities were ``restricted activities,'' and revoke Federal funding. 
Several comments also sought approval of particular hypotheticals. The 
Department does not believe it should provide opinions on hypothetical 
scenarios because information may be incomplete. While the Department 
does not define restricted activities in the rule, working with other 
agencies implementing the Leadership Act, the U.S. Government intends 
to provide broad information on types of activities that illustrate 
what would be covered.

Section 89.3 Organizational Integrity of the Recipients

    This section sets forth the separation requirements for funding 
recipients who wish to affiliate with organizations that do not have a 
policy opposing prostitution and sex trafficking. Specifically, the 
final rule no longer requires that an affiliate be a legally separate 
entity. As stated in the November 23, 2009, NPRM, separate legal 
incorporation in each of the host countries where a recipient might 
work could prove complicated. Additionally, the inherent difficulty of 
the Department analyzing multiple foreign legal requirements makes this 
factor unworkable as a determinative criterion.
    The rule also allows greater flexibility for funding recipients to 
demonstrate organizational separation from entities which do not have a 
policy opposing sex trafficking and prostitution. As noted in the NPRM, 
these changes include changing separate personnel requirements to 
allocation of personnel requirements, and the deletion of separate 
management and governance requirements.
    Many commenters believe that the proposed rule, even with 
modification, unlawfully compels speech in violation of the First 
Amendment, and therefore cannot be enforced against domestic entities. 
The Department disagrees. As explained above, the DC Circuit Court of 
Appeals upheld the Leadership Act against constitutional claims even 
prior to the promulgation of implementing regulations. The court in 
that case specifically relied on the fact that entities were free to 
set up affiliates which ``would qualify for government funds as long as 
the two organizations' activities were kept sufficiently separate.'' 
DKT Int'l v. USAID, 477 F.3d at 763. Likewise, the Supreme Court and 
the Second Circuit Court of Appeals have upheld more burdensome 
regulations where funding recipients had ``adequate alternative 
channels for protected expression.'' Brooklyn Legal Servs. Corp. v. 
Legal Serv's Corp., 462 F.3d 219, 231 (2d Cir. 2006); Rust v. Sullivan, 
500 U.S. 173 (1991).
    The goal in implementing the revised rule on the prostitution 
policy provision is to ensure that the Government's position opposing 
prostitution and sex trafficking is not undermined while allowing 
Leadership Act funding recipients greater flexibility in finding 
alternative channels for protected expression in diverse areas for 
diverse populations. Given the numerous factual situations that may 
arise, the Department has deliberately adopted a case-by-case approach 
in this area, recognizing that circumstances in some countries may make 
it difficult for organizations to satisfy some of the factors 
demonstrating objective integrity and independence. The Department also 
plans to work with recipients to address individual questions regarding 
the separation criteria, and to help remedy violations before taking 
enforcement action. We believe these steps will ensure recipients have 
adequate channels for engaging in protected speech while still adhering 
to the requirement of the Leadership Act that recipient organizations 
be opposed to the practices of prostitution and sex trafficking because 
of the psychological and physical risks they pose for women, men and 
children.
    Several commenters also objected to the Department's listing of 
only five factors relevant to the integrity analysis when the 
regulation allows that other unlisted factors may be taken into 
account. Again, the relevant inquiry will not be the presence or 
absence of any particular factor, but the ``totality of 
circumstances,'' under which the recipient organization is shown to be 
sufficiently separate from an affiliate organization that does not have 
a policy opposing prostitution. The court decisions previously 
discussed all upheld similar regulations where the Government 
specifically stated the factors were ``not limited to'' those set forth 
in regulation.
    Several commenters expressed concern that the extent of restricted 
activities by the affiliated organization would be a factor considered 
by the Department. Given that the purpose of affiliate separation 
requirements is to determine when an affiliated organization is so 
closely tied to the funding recipient that a reasonable observer would 
attribute its activities to the funding recipient, the Department 
agrees that the extent of restricted activities by a separate entity 
should not be considered, and therefore has deleted that part of 
Subsection 89.3(b)(4).
    Several commenters believed the proposed rule should mirror the 
Department's non-discrimination regulations for faith based 
organizations. Under these regulations, the commenters insist, 
``religious activities'' require only time or space separation. 
However, the faith based regulations rely on different statutory and 
constitutional foundations. The faith based regulations allow religious 
and non-religious organizations to compete equally in applying for 
Federal funds as long as time, place and other restrictions on 
religious activities are met consistent with the Establishment Clause 
of the U.S. Constitution. By contrast, the Leadership Act requires all 
funding recipients, regardless of the character of their organization, 
to have a policy against prostitution and sex trafficking. The 
Leadership Act requires that HIV/AIDS funding recipients act 
consistently with their opposition to prostitution and sex trafficking. 
This requirement necessitates greater separation between funding 
recipients and organizations that engage in activities inconsistent 
with an opposition to prostitution and sex trafficking, than the faith 
based regulations require between governmental programs operated by a 
faith based organization and its religious activities. The Department 
believes this rule best meets the goals of the Leadership Act's anti-
prostitution provision without infringing upon the constitutional 
rights of recipients.

Deleted Section 89.3 Certification

    As proposed, former section 89.3 requiring annual certification of 
compliance with the anti-prostitution provision by both recipients and 
sub-recipients has been deleted. The Department does not believe such 
procedures are necessary for compliance

[[Page 18763]]

under the Leadership Act. Recipients are still required to follow the 
dictates of the Leadership Act and maintain the required separation 
from affiliates that engage in activities inconsistent with an 
opposition to prostitution and sex trafficking. The required notice in 
the public announcement and awarding instrument will provide notice to 
funding recipients of the Leadership Act's anti-prostitution 
requirements and allow an opportunity to engage the Department in 
further dialogue on the issue if an applicant desires.
    Those commenting on this deletion suggested the lack of 
certification would make the Leadership Act unenforceable, adding that 
the negligible cost of certification is far outweighed by its benefits. 
The Department disagrees. The Department is not hampered in its 
monitoring or enforcement by the lack of certification, and may still 
conduct audits of discretionary grant programs whenever they are 
warranted to ensure compliance with program requirements. Nothing in 
the Leadership Act requires certification by recipients or prevents 
enforcement when those requirements are not met. Given the cost to the 
public of administering the certification and the negligible benefit to 
the Department, deleting the requirement comports with the goals of the 
Paperwork Reduction Act to ``minimize the paperwork burden * * * from 
the collection of information by and for the Federal Government.'' 35 
U.S.C. 3501.

III. Impact Analysis

Executive Order 12866 and Paperwork Reduction Act

    As explained in the NPRM to this final rule, this rule is a 
``significant regulatory action'' under Executive Order 12866, section 
3(f)(4), because it raises novel legal or policy issues that arise out 
of legal mandates and the President's priorities, and accordingly, the 
Office of Management and Budget has reviewed it.
    This rule modifies a previously issued final rule on the same 
subject, published on December 24, 2008, in the Federal Register. The 
modification reduces the burden on applicants and funding recipients in 
complying with the policy. The December 24, 2008, final rule required 
statements and formal documentation from recipients before they could 
receive Leadership Act HIV/AIDS funds. The Impact Analysis and the 
Paperwork Reduction Act in the December 24, 2008, final rule estimated 
the burden and cost of writing the additional documentation. This rule 
no longer requires this additional documentation. As a result, 
applicants for Leadership Act HIV/AIDS funds will no longer have to 
incur the costs outlined in the December 24, 2008, impact analysis and 
paperwork burden analysis.
    Therefore, the rule should relieve regulated entities by the 
amounts specified in the December 24, 2008, final rule. We are 
republishing the impact table from the December 24, 2008, final rule. 
The burden estimate was $7,337 calculated by assuming an additional 
half hour of clerical work to prepare documentation on behalf of 555 
grantees at an hourly rate of $ 26.44.

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                                                                        Number of     Average  burden
                    Instrument                         Number of      responses  per     hours per       Average cost     Total burden     Total burden
                                                      respondents       respondent        response         per hour          hours             cost
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Certifications....................................             555                1              0.5           $26.44            277.5           $7,337
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List of Subjects in 45 CFR Part 89

    Administrative practice and procedure, Federal aid programs, Grants 
programs, Grants administration.

    Dated: January 22, 2010.
John Monahan,
Interim Director, Office of Global Health Affairs.

    Dated: January 22, 2010.
Kathleen Sebelius,
Secretary.

0
Therefore, under the authority of section 301(f) of the Leadership Act, 
as amended, and for the reasons stated in the preamble, the Department 
revises 45 CFR part 89 to read as follows:

PART 89--ORGANIZATIONAL INTEGRITY OF ENTITIES IMPLEMENTING PROGRAMS 
AND ACTIVITIES UNDER THE LEADERSHIP ACT

Sec.
89.1 Applicability and requirements.
89.2 Definitions.
89.3 Organizational integrity of recipients.

    Authority: Section 301(f) of the Leadership Act, Pub. L. 108-25, 
as amended (22 U.S.C. 7631(f)) and 5 U.S.C. 301.


Sec.  89.1  Applicability and requirements.

    (a) This regulation applies to all recipients unless they are 
exempted from the policy requirement by the Leadership Act or other 
statute.
    (b) The Department of Health and Human Services (HHS) components 
shall include in the public announcement of the availability of the 
grant, cooperative agreement, contract, or other funding instrument 
involving Leadership Act HIV/AIDS funds the requirement that recipients 
agree that they are opposed to the practices of prostitution and sex 
trafficking because of the psychological and physical risks they pose 
for women, men, and children. This requirement shall also be included 
in the award documents for any grant, cooperative agreement or other 
funding instrument involving Leadership Act HIV/AIDS funds entered into 
with the recipient.


Sec.  89.2  Definitions.

    For the purposes of this part:
    Commercial sex act means any sex act on account of which anything 
of value is given to or received by any person.
    Leadership Act means the United States Leadership Against HIV/AIDS, 
Tuberculosis, and Malaria Act of 2003, Public Law 108-25, as amended 
(22 U.S.C. 7601-7682).
    Prostitution means procuring or providing any commercial sex act.
    Recipients are contractors, grantees, applicants or awardees who 
receive Leadership Act funds for HIV/AIDS programs directly or 
indirectly from HHS.
    Sex trafficking means the recruitment, harboring, transportation, 
provision, or obtaining of a person for the purpose of a commercial sex 
act.


Sec.  89.3  Organizational integrity of recipients.

    A recipient must have objective integrity and independence from any 
affiliated organization that engages in activities inconsistent with 
the recipient's opposition to the practices of prostitution and sex 
trafficking because of the psychological and physical risks they pose 
for women, men and children (``restricted activities''). A recipient 
will be found to have objective integrity and independence from such an 
organization if:
    (a) The affiliated organization receives no transfer of Leadership 
Act HIV/AIDS funds, and Leadership Act HIV/AIDS

[[Page 18764]]

funds do not subsidize restricted activities; and
    (b) The recipient is, to the extent practicable in the 
circumstances, separate from the affiliated organization. Mere 
bookkeeping separation of Leadership Act HIV/AIDS funds from other 
funds is not sufficient. HHS will determine, on a case-by-case basis 
and based on the totality of the facts, whether sufficient separation 
exists. The presence or absence of any one or more factors relating to 
legal, physical, and financial separation will not be determinative. 
Factors relevant to this determination shall include, but not be 
limited to, the following:
    (1) Whether the organization is a legally separate entity;
    (2) The existence of separate personnel or other allocation of 
personnel that maintains adequate separation of the activities of the 
affiliated organization from the recipient;
    (3) The existence of separate accounting and timekeeping records;
    (4) The degree of separation of the recipient's facilities from 
facilities in which restricted activities occur; and
    (5) The extent to which signs and other forms of identification 
that distinguish the recipient from the affiliated organization are 
present.

[FR Doc. 2010-8378 Filed 4-12-10; 8:45 am]
BILLING CODE 4150-38-P