[Federal Register Volume 80, Number 22 (Tuesday, February 3, 2015)]
[Proposed Rules]
[Pages 5716-5718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01893]


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LEGAL SERVICES CORPORATION

45 CFR Part 1640


Application of Federal Law to LSC Recipients

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule updates the Legal Services Corporation (LSC 
or Corporation) regulation on the application of Federal law to LSC 
recipients. The FY 1996 appropriations act (incorporated in LSC's 
appropriations by reference annually thereafter) subjects LSC 
recipients to Federal law relating to the proper use of Federal funds. 
This proposed rule will provide recipients with notice of the 
applicable Federal laws each recipient must agree to be subject to 
under this rule, the consequences of a violation of an applicable 
Federal law, and where LSC will maintain the list of applicable laws.

DATES: Comments must be submitted by March 5, 2015.

ADDRESSES: Written comments must be submitted to Stefanie K. Davis, 
Assistant General Counsel, Legal Services Corporation, 3333 K Street 
NW., Washington, DC 20007; (202) 337-6519 (fax) or 
[email protected]. Electronic submissions are preferred via email 
with attachments in Acrobat PDF format. Written comments sent to any 
other address or received after the end of the comment period may not 
be considered by LSC.

FOR FURTHER INFORMATION CONTACT: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Statutory and Regulatory Background

    Section 504(a)(19) of LSC's FY 1996 appropriations act required LSC 
recipients to enter into a contract that subjected recipients to ``all 
provisions of Federal law relating to the proper use of Federal 
funds.'' Sec. 504(a)(19), Public Law 104-134, title V; 110 Stat. 1321. 
By its terms, a violation of Sec. 504(a)(19) renders any LSC grant or 
contract null and void. The provision has been incorporated by 
reference into each of LSC's annual appropriations act since. 
Accordingly, the preamble and text of this proposed rule continue to 
refer to the appropriate section number of the FY 1996 appropriations 
act.
    The Corporation first issued 45 CFR part 1640 as an interim rule in 
1996 to implement Sec. 504(a)(19). 61 FR 45760 (Aug. 29, 1996). The 
interim rule was put in place to provide immediate guidance to LSC 
recipients on legislation that was already in effect and carried 
significant penalties for noncompliance. Id. In the preamble to the 
interim rule, LSC announced that it was interpreting the statutory 
phrase ``all provisions of Federal law relating to the proper use of 
Federal funds'' to mean ``with respect to [a recipient's] LSC funds, 
all programs should be subject to Federal laws which address issues of 
waste, fraud and abuse of Federal funds.'' Id. LSC based its 
interpretation on legislative history that appeared to limit the 
applicable laws to those dealing with fraud, waste, and abuse of 
Federal funds.
    In particular, LSC relied on two congressional documents to support 
its interpretation. First, the Corporation cited to the House Report 
for H.R. 2076, which was a prior effort to enact a provision similar to 
section 504(a)(19). The relevant language in that report stated:

    [S]ection 504(20) requires all programs receiving Federal funds 
to comply with Federal statutes and regulations governing waste, 
fraud, and abuse of Federal funds.

H. Rep. No. 104-196, 104th Cong., 1st Sess. 116 (July 1995) (emphasis 
added). Second, LSC cited section 5 of H.R. 1806, the Legal Services 
Reform Act of 1995, which was an unsuccessful attempt to revise the LSC 
Act. As an extension of his remarks introducing H.R. 1806, Rep. 
McCollum submitted a partial summary of the bill, including a 
discussion of section 5 entitled

[[Page 5717]]

``Application of waste, fraud, and abuse laws.'' 141 Cong. Rec. E1220-
21 (daily ed. June 9, 1995). Section 5 itself was titled ``Protection 
Against Theft and Fraud,'' and expressly included provisions of Title 
18 of the U.S. Code pertaining to criminal offenses involving the 
misuse of Federal funds, as well as provisions of the False Claims Act. 
H.R. 1806, 104th Cong., Sec.  5 (1995).
    LSC adopted the list of statutes in section 5, with one exception. 
Through negotiation with LSC's Office of Inspector General (OIG), LSC 
determined that two other criminal statutes should be included in the 
list. 61 FR 45760. These statutes prohibit bribery of public officials 
and witnesses and conspiracy to defraud the United States. Id. at 
45761.
    Minor changes to the interim rule, not affecting this list, were 
made before the final rule was published in 1997. 62 FR 19424-19427 
(April 21, 1997). LSC has not revised Part 1640 since the publication 
of the final rule.

II. LSC's Consideration of the Applicable Federal Laws

    Since the final rule was published, Congress has amended or passed 
other Federal laws relating to the proper use of Federal funds. In 
2014, OIG raised concerns that the Sec.  1640.2(a)(1) list of 
applicable Federal laws is now under-inclusive. As an example, OIG 
noted the omission of 18 U.S.C. 666, which prohibits theft or bribery 
concerning programs receiving Federal funds and is the basis for many 
of OIG's referrals to the Department of Justice for prosecution. 
Subsequently, LSC staff researched other Federal laws applicable to 
fraud, waste, and abuse of Federal funds. The search revealed at least 
two other Federal laws relating to the proper use of Federal funds 
currently missing from the Sec.  1640.2(a)(1) list: 18 U.S.C. 285--
Taking or using papers relating to claims, and 18 U.S.C. 1031--Major 
fraud against the United States.
    In response to OIG's concern, LSC initially considered removing all 
statutory references from the regulation and instead drafting a 
definition of ``Federal law relating to the proper use of Federal 
funds'' to encompass all the applicable Federal laws without the need 
to specifically list the statutory references. LSC staff concluded that 
any possible definition would either narrow the scope of Section 
504(a)(19) too much or allow for too broad of an interpretation of the 
provision. LSC subsequently based its options for revising Part 1640 on 
two considerations: whether the list of ``Federal law relating to the 
proper use of Federal funds'' should remain in Part 1640 or be moved to 
LSC's Web site, and whether the list should remain exhaustive or be 
made illustrative. LSC considered whether each option for amending the 
regulation appropriately balanced the desire for notice to recipients 
about the ``Federal law relating to the proper use of Federal funds'' 
covered by the rule with LSC's interest in expeditiously amending the 
list of such laws whenever Congress acts to add, repeal, or amend them.
    First, the Corporation considered adding the missing statutes to 
the current Sec.  1640.2(a)(1) list and revising the language to make 
it clear that the list of statutes is merely illustrative. LSC staff 
concluded that an illustrative list would not give recipients adequate 
notice about which laws may be included in this part. Second, LSC 
considered simply adding the three missing statutes to the current list 
in Sec.  1640.2(a)(1) and retaining the list's exhaustive nature. LSC 
staff concluded that this option would not address OIG's concerns about 
the rule becoming over- or under-inclusive as laws governing the proper 
use of Federal funds are amended, added, or repealed. Nor would this 
option improve LSC's ability to update the list in a timely fashion. 
Finally, LSC considered removing all statutory references from the 
regulation and instead referring readers to the LSC Web site, where LSC 
would maintain an easily updated list of applicable statutes. LSC staff 
concluded that this option would allow LSC more flexibility to update 
and revise the list of laws in a timely manner. This option would also 
provide recipients with adequate notice of the applicable laws because 
LSC would provide a link to the list in the annual contractual 
agreement.
    LSC proposes to adopt this last option using an exhaustive list of 
statutes. This approach would require a minor modification in the 
contractual agreement between the Corporation and its recipients, which 
currently directs recipients to the Sec.  1640.2(a)(1) list. The 
Corporation refers to this contractual agreement as the ``LSC Grant 
Assurances,'' and requires recipients to consent to the agreement 
annually as a condition of receiving LSC funding. The Grant Assurances 
would be modified to direct recipients to the Corporation's Web site, 
where the list of applicable laws would be maintained.
    As required by the LSC Rulemaking Protocol, LSC staff prepared an 
explanatory rulemaking options paper, accompanied by a proposed rule 
amending Part 1640. On January 22, 2015, the Committee voted to 
authorize LSC to initiate rulemaking and to recommend that the Board 
approve publishing the proposed rule. On January 24, 2015, the Board 
approved the proposed rule for publication in the Federal Register for 
notice and comment. A section by section analysis of the proposed rule 
is provided below.

III. Proposed List of Federal Laws Relating to the Proper Use of 
Federal Funds

    LSC proposes to post the following list of applicable Federal laws 
relating to the proper use of Federal funds on the Corporation's Web 
site. The list would be subject to change as legislation changes. LSC 
seeks comment on both the proposal to remove the list from Part 1640 
and the proposed list of statutes.

1. 18 U.S.C. 201 (Bribery of Public Officials and Witnesses);
2. 18 U.S.C. 285 (Taking or using papers relating to claims);
3. 18 U.S.C. 286 (Conspiracy to Defraud the Government With Respect to 
Claims);
4. 18 U.S.C. 287 (False, Fictitious or Fraudulent Claims);
5. 18 U.S.C. 371 (Conspiracy to Commit Offense or Defraud the United 
States);
6. 18 U.S.C. 641 (Public Money, Property or Records);
7. 18 U.S.C. 666 (Theft or bribery concerning programs receiving 
Federal funds);
8. 18 U.S.C. 1001 (Statements or Entries Generally);
9. 18 U.S.C. 1002 (Possession of False Papers to Defraud the United 
States);
10. 18 U.S.C. 1031 (Major fraud against the United States);
11. 18 U.S.C. 1516 (Obstruction of Federal Audit);
12. 31 U.S.C. 3729 (False Claims);
13. 31 U.S.C. 3730 (Civil Actions for False Claims), except that 
actions that are authorized by 31 U.S.C. 3730(b) to be brought by 
persons may not be brought against the Corporation, any recipient, 
subrecipient, grantee, or contractor of the Corporation, or its 
employees;
14. 31 U.S.C. 3731 (False Claims Procedure);
15. 31 U.S.C. 3732 (False Claims Jurisdiction); and
16. 31 U.S.C. 3733 (Civil Investigative Demands).

IV. Proposed Changes

1640.1 Purpose

    LSC proposes to revise Sec.  1640.1 to reflect the changes to Sec.  
1640.2.

1640.2 Applicable Federal laws

    LSC proposes to delete existing Sec.  1640.2(a)(1), redesignate 
Sec.  1640.2(a)(2)

[[Page 5718]]

as Sec.  1640.2(b), and redesignate existing Sec.  1640.2(b)(1) and (2) 
as Sec.  1640.4(a)(1) and (b)(1) respectively.
    Proposed Sec.  1640.2(a) states that the Corporation will maintain 
a public list of applicable Federal laws. The list will be maintained 
on the Corporation's Web site. The contract between the Corporation and 
the recipient, currently referred to as the LSC Grant Assurances, will 
be revised to provide recipients with a link to the list.
    Removing the list of statutes from the text of the rule will allow 
the Corporation to modify the list as needed with approval of the 
Board, rather than requiring LSC to engage in rulemaking prior to 
making any necessary changes. This change will allow LSC to update the 
list more quickly in response to congressional actions adding, 
amending, or repealing ``Federal law relating to the proper use of 
Federal funds.'' Modification of the list with Board approval does not 
rule out notice and comment for any changes, but it also does not 
require notice and comment for any changes. LSC will provide recipients 
with notice any time the list is modified.
    Proposed Sec.  1640.2(b) renumbers and revises existing Sec.  
1640.2(a)(2) for clarity and readability. LSC made no substantive 
changes to this subsection.
    Recipients are reminded that OIG has statutory responsibility to 
investigate the activities covered by the applicable Federal laws. 
Although the contractual agreement with the Corporation would apply 
only to LSC funds, recipients are further reminded that OIG 
investigates reports of possible theft or misuse of a recipient's non-
LSC funds as well as its LSC funds and would report any theft or misuse 
that is found to the appropriate Federal or State authorities.

1640.3 Contractual Agreement

    LSC proposes to revise existing Sec.  1640.3 to reflect the removal 
of the list of Federal law relating to the proper use of Federal funds 
from Sec.  1640.2. LSC also proposes minor editorial changes to the 
rule.

1640.4 Violation of Agreement

    LSC proposes to redesignate existing Sec.  1640.2(b)(1) and (2) as 
Sec.  1640.4(a) and (c) respectively. The proposed move will group each 
definition in existing Sec.  1640.2(b) with each definition's 
consequence for violating the agreement in existing Sec.  1640.4. LSC 
made no substantive changes to this subsection, but has revised the 
text for clarity.

List of Subjects in 45 CFR Part 1640

    Fraud; Grant programs--law; Legal services.

    For the reasons set forth in the preamble, the Legal Services 
Corporation proposes to revise 45 CFR part 1640 to read as follows:

PART 1640--APPLICATION OF FEDERAL LAW TO LSC RECIPIENTS

Sec.
1640.1 Purpose
1640.2 Applicable Federal laws
1640.3 Contractual agreement
1640.4 Violation of agreement

    Authority:  42 U.S.C. 2996g(e).


Sec.  1640.1  Purpose.

    The purpose of this part is to ensure that recipients use their LSC 
funds in accordance with Federal law related to the proper use of 
Federal funds. This part also provides notice to recipients of the 
consequences of a violation of such Federal laws by a recipient, its 
employees or board members.


Sec.  1640.2  Applicable Federal laws.

    (a) LSC will maintain a public list of applicable Federal laws 
relating to the proper use of Federal funds on its Web site and provide 
recipients with a link to the list in the contractual agreement. The 
list may be modified with the approval of the Corporation's Board of 
Directors. LSC will provide recipients with notice when the list is 
modified.
    (b) For the purposes of this part and the laws referenced in 
paragraph (a) of this section, LSC is considered a Federal agency and a 
recipient's LSC funds are considered Federal funds provided by grant or 
contract.


Sec.  1640.3  Contractual agreement.

    As a condition of receiving LSC funds, a recipient must enter into 
a written agreement with the Corporation that, with respect to its LSC 
funds, will subject the recipient to the applicable Federal laws 
relating to the proper use of Federal funds. The agreement must include 
a statement that all of the recipient's employees and board members 
have been informed of such Federal law and of the consequences of a 
violation of such law, both to the recipient and to themselves as 
individuals.


Sec.  1640.4  Violation of agreement.

    (a) LSC will determine that a recipient has violated the agreement 
described in Sec.  1640.3 when the recipient has been convicted of, or 
judgment has been entered against the recipient for, a violation of an 
applicable Federal law relating to the proper use of Federal funds with 
respect to its LSC grant or contract, by the court having jurisdiction 
of the matter, and any appeals of the conviction or judgment have been 
exhausted or the time for appeal has expired.
    (b) A violation of the agreement by a recipient based on recipient 
conduct will result in the Corporation terminating the recipient's LSC 
grant or contract without need for a termination hearing. While an 
appeal of a conviction or judgment is pending, the Corporation may take 
any necessary steps to safeguard its funds.
    (c) LSC will determine that the recipient has violated the 
agreement described in Sec.  1640.3 when an employee or board member of 
the recipient has been convicted of, or judgment has been entered 
against the employee or board member for, a violation of an applicable 
Federal law relating to the proper use of Federal funds with respect to 
the recipient's grant or contract with LSC, by the court having 
jurisdiction of the matter, and any appeals of the conviction or 
judgment have been exhausted or the time for appeal has expired, and 
the Corporation finds that the recipient has knowingly or through gross 
negligence allowed the employee or board member to engage in such 
activities.
    (d) A violation of the agreement by the recipient based on employee 
or board member conduct will result in the Corporation terminating the 
recipient's LSC grant or contract. Prior to termination, the 
Corporation will provide notice and an opportunity to be heard for the 
sole purpose of determining whether the recipient knowingly or through 
gross negligence allowed the employee or board member to engage in the 
activities leading to the conviction or judgment. While an appeal of a 
conviction or judgment or a hearing is pending, the Corporation may 
take any necessary steps to safeguard its funds.

    Dated: January 28, 2015.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2015-01893 Filed 2-2-15; 8:45 am]
BILLING CODE 7050-01-P