[Federal Register: November 20, 2002 (Volume 67, Number 224)]
[Rules and Regulations]
[Page 69990-69994]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20no02-2]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 366
RIN 3064-AC29
Minimum Standards of Integrity and Fitness for an FDIC Contractor
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is issuing
this rule which governs conflicts of interest, ethical
responsibilities, and use of confidential information by independent
contractors seeking to do business with the FDIC. This rule ensures
that any individual who is performing, directly or indirectly, any
function or service on behalf of the FDIC meets minimum standards of
integrity and fitness. It also prohibits certain persons from
performing any service on behalf of the FDIC. This rule makes four
changes from the interim final rule that the FDIC published on May 15,
2002. These changes are described below in Section II of the
Supplementary Information.
EFFECTIVE DATE: December 20, 2002.
FOR FURTHER INFORMATION CONTACT: Martin A. Blumenthal, Counsel, (202)
736-0359, Peter M. Somerville, Counsel, (202) 736-0110, or Thomas E.
Nixon, Senior Attorney, (202) 898-8766, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
These are not toll-free numbers.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Overview
This rule sets forth integrity and fitness provisions for FDIC
contractors in three areas. The first area regards those persons from
whom the FDIC is prohibited from entering into a contract. The second
area identifies integrity and fitness responsibilities for independent
contractors. These include conflicts of interest, minimum standards of
ethical responsibility, confidential information, and information that
contractors must disclose to the FDIC. The last area regards a
contractor's expectations, rights and obligations. These include what
advice and determinations the FDIC will provide a contractor,
reconsiderations and reviews of those determinations, and the possible
consequences a person may face for violating the provisions of this
rule.
B. Authority
The statutory authorities for adopting this rule are our general
rulemaking authority found at section 9 (Tenth) of the Federal Deposit
Insurance Act (FDI Act), 12 U.S.C. 1819 (Tenth); and sections 12(f)(3)
and (4) of the FDI Act, 12 U.S.C. 1822(f)(3) and (4). Section 19 of the
Resolution Trust Corporation Completion Act (RTCCA), Public Law 103-
204, 107 Stat. 2369 (1993), required the addition of section 12(f) to
the FDI Act.
We may establish other integrity and fitness policies where we
determine such policies are required by law or appropriate to maintain
the integrity of our programs. Any such policies may be independent of,
in conjunction with, or in addition to the restrictions set forth in
this rule.
We may also, temporarily or permanently, suspend this rule or
exempt a person from compliance with any part of this rule for good
cause shown, in order to protect our interests or to provide an orderly
transfer of services to another person.
C. Background
The contractor integrity and fitness rules, based on statutory
requirements, are regulatory tools the FDIC uses to assure that certain
of its contractors meet minimum standards of competence, experience,
integrity and fitness. See Federal Home Loan Bank Act, section
21A(p)(6), as added by section 501(a) of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, Public Law 101-73, 103
Stat. 183. This statute was enacted to ensure that no person who
contributed to the failure of an insured depository institution could
contract with the FDIC without disclosure and considerable scrutiny.
On June 24, 1994, we published a proposed rule applicable to
independent contractors (59 FR 32661-32668), as required by section
12(f)(3) of the FDI Act, 12 U.S.C. 1822(f)(3). That rulemaking proposed
standards governing conflicts of interest, ethical responsibilities,
and use of confidential information. It also proposed procedures for
ensuring that independent contractors meet minimum standards for
competence, experience, integrity, and fitness. We received six comment
letters. After careful consideration of each comment and numerous
changes that the Office of Government Ethics (OGE) requested, we made
appropriate modifications to the proposal resulting in the
reorganization and modification of some provisions.
On March 11, 1996, we adopted an interim final rule entitled,
``Contractor Conflicts of Interest'', (61 FR 9590), with the
concurrence of OGE. We determined that an interim final rule was
appropriate in order to allow interested parties to comment on the rule
while providing prompt implementation of the rule to satisfy concerns
relating to the merger of the RTC into the FDIC. We received only one
comment on the interim final rule and it was non-substantive.
On May 15, 2002, we published an interim final rule requesting
public comment. The interim rule represented a fundamental
reconsideration of our obligations under the RTCCA. We received no
public comments in response to our May 2002 interim final rule.
II. Final Rule
We are adopting the May 2002 interim final rule with four minor
changes. First, in the interim final rule, Sec. 366.12(c) stated that
contractors are required to disclose waste, fraud, abuse or corruption
to us. We are adding to Sec. 366.12(c) a telephone number and an email
address that can be used to make such reports to the FDIC Inspector
General. Second, in the interim final rule, Sec. 366.12(d)(4)
prohibited contractors from making impermissible gifts or entertainment
to an FDIC employee. We are extending this prohibition to gifts made by
FDIC contractors to other FDIC contractors, as well as FDIC employees.
This is because there can be occasions in which FDIC
[[Page 69991]]
contractors may make decisions on behalf of the FDIC. Third, in the
interim final rule, Sec. 366.14(f) established retention requirements
for information that FDIC contractors submit to the FDIC pursuant to
this rule. The interim final rule broadly described the information
that must be retained as any information that the contractor relies
upon regarding their compliance with part 366. The final rule clarifies
that information the contractor relies upon includes information that
they prepare. Finally, because the May 2002 interim final rule was
unclear as to which event triggers the three year retention period, we
are adding the phrase ``which ever occurs last'' at the end of the
sentence for further clarification. As a result, Sec. 366.12(f) will
require contractors to retain any information they prepare or rely upon
regarding the provisions of part 366 for a period of three years
following termination or expiration and final payment of the related
contract for services whichever occurs last.
III. Matters of Regulatory Procedure
A. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the FDIC certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities. This rule, which finalizes the May 2002 interim final rule,
imposes no new compliance burdens on small entities within the meaning
of the Regulatory Flexibility Act.
Our May 2002 interim final rule noted that we were reviewing this
rule pursuant to our responsibilities under section 610 of the
Regulatory Flexibility Act and requested public comment about our
review. A section 610 review requires us to consider how we could
minimize the economic impact of the rule on small businesses while
remaining consistent with the objectives of the statute that requires
the rule. Our May 2002 interim rulemaking resulted from a careful
consideration of how we could minimize the burden of the 1996 rule.
Based on our review under section 610, we conclude that the May 2002
rule changes should successfully reduce burden on small businesses with
whom we contract and that no further changes are necessary now.
B. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.), we may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid Office of Management and Budget (OMB) control number. We
submitted two collections of information to OMB for review when we
published the May 2002 interim final rule.
One collection is titled ``Acquisition Services Information
Requirements,'' and includes forms that we use to ensure compliance
with our contractor integrity and fitness regulation and to make
contracting decisions for contractors other than legal service
providers. The May 2002 rule changed the definitions of some of the
terms used on OMB approved contracting forms. Each of the changes
reduced estimated burden on our contractors. OMB approved our changes
to the information collection under control number 3064-0072, which
will expire June 30, 2005.
The second collection is titled, ``Forms Relating to FDIC Outside
Counsel Services'' and includes forms we use to ensure compliance with
our contractor integrity and fitness regulation, to make contracting
decisions, and to control payments to law firms and legal support
service providers. The May 2002 rulemaking affected the definition of
terms on one of the 13 forms in that collection and reduced the
estimated burden in completing the form. OMB approved our changes to
the information collection under control number 3064-0122, which will
expire June 30, 2005.
C. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
We have determined that this rule will not affect family well-being
within the meaning of section 654 of the Treasury and Government
Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).
D. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) (Pub. L. 104-121) provides generally for agencies to report
rules to Congress for review. The reporting requirement is triggered
when the FDIC issues a final rule as defined by the Administrative
Procedure Act (APA) at 5 U.S.C. 551. Because the FDIC is issuing a
final rule as defined by the APA, the FDIC will file the reports
required by the SBREFA. The Office of Management and Budget has
determined that this final rule does not constitute a ``major rule'' as
defined by the SBREFA.
List of Subjects in 12 CFR Part 366
Contractor conflicts of interest, Government contracts, Reporting
and recordkeeping requirement.
For the reasons set forth in the preamble, we hereby revise part
366 of chapter III of title 12 of the Code of Federal Regulations to
read as follows:
PART 366--MINIMUM STANDARDS OF INTEGRITY AND FITNESS FOR AN FDIC
CONTRACTOR
Sec.
366.0 Definitions.
366.1 What is the purpose of this part?
366.2 What is the scope of this part?
366.3 Who cannot perform contractual services for the FDIC?
366.4 When is there a pattern or practice of defalcation?
366.5 What causes a substantial loss to a federal deposit insurance
fund?
366.6 How is my ownership or control determined?
366.7 Will the FDIC waive the prohibitions under Sec. 366.3?
366.8 Who can grant a waiver of a prohibition or conflict of
interest?
366.9 What other requirements could prevent me from performing
contractual services for the FDIC?
366.10 When would I have a conflict of interest?
366.11 Will the FDIC waive a conflict of interest?
366.12 What are the FDIC's minimum standards of ethical
responsibility?
366.13 What is my obligation regarding confidential information?
366.14 What information must I provide the FDIC?
366.15 What advice or determinations will the FDIC provide me on the
applicability of this part?
366.16 When may I seek a reconsideration or review of an FDIC
determination?
366.17 What are the possible consequences for violating this part?
Authority: Section 9 (Tenth) of the Federal Deposit Insurance
Act (FDI Act), 12 U.S.C. 1819 (Tenth); sections 12(f)(3) and (4) of
the FDI Act, 12 U.S.C. 1822(f)(3) and (4); and section 19 of Pub. L.
103-204, 107 Stat. 2369.
Sec. 366.0 Definitions.
As used in this part:
(a) The word person refers to an individual, corporation,
partnership, or other entity with a legally independent existence.
(b) The terms we, our, and us refer to the Federal Deposit
Insurance Corporation (FDIC), except when acting as conservator or
operator of a bridge bank.
(c) The terms I, me, my, mine, you, and yourself refer to a person
who submits an offer to perform or performs, directly or indirectly,
contractual services or functions on our behalf.
(d) The phrase insured depository institution refers to any bank or
savings
[[Page 69992]]
association whose deposits are insured by the FDIC.
Sec. 366.1 What is the purpose of this part?
This part establishes the minimum standards of integrity and
fitness that contractors, subcontractors, and employees of contractors
and subcontractors must meet if they perform any service or function on
our behalf. This part includes regulations governing conflicts of
interest, ethical responsibility, and use of confidential information
in accordance with section 12(f)(3) of the FDI Act, 12 U.S.C.
1822(f)(3), and the prohibitions and the requirements for submission of
information in accordance with section 12(f)(4) of the FDI Act, 12
U.S.C. 1822(f)(4).
Sec. 366.2 What is the scope of this part?
(a) This part applies to a person who submits an offer to perform
or performs, directly or indirectly, a contractual service or function
on our behalf.
(b) This part does not apply to:
(1) An FDIC employee for the purposes of title 18, United States
Code; or
(2) The FDIC when we operate an insured depository institution such
as a bridge bank or conservatorship.
Sec. 366.3 Who cannot perform contractual services for the FDIC?
We will not enter into a contract with you to perform a service or
function on our behalf, if you or any person that owns or controls you,
or any entity you own or control:
(a) Has a felony conviction;
(b) Was removed from or is prohibited from participating in the
affairs of an insured depository institution as a result of a federal
banking agency final enforcement action;
(c) Has a pattern or practice of defalcation; or
(d) Is responsible for a substantial loss to a federal deposit
insurance fund.
Sec. 366.4 When is there a pattern or practice of defalcation?
(a) You have a pattern or practice of defalcation under Sec.
366.3(c) when you, any person that owns or controls you, or any entity
you own or control has a legal responsibility for the payment on at
least two obligations that are:
(1) To one or more insured depository institutions;
(2) More than 90 days delinquent in the payment of principal,
interest, or a combination thereof; and
(3) More than $50,000 each.
(b) The following are examples of when you have or do not have a
pattern or practice of defalcation. These examples are not inclusive.
(1) You have five loans at insured depository institutions. Three
of them are 90 days past due. Two of the three loans have outstanding
balances of more than $50,000 each. You have a pattern or practice of
defalcation.
(2) You have five loans at insured depository institutions. Two of
them are 90 days past due. One of the two is with ABC Bank for
$170,000. The other one is with XYZ bank for $60,000. You have a
pattern or practice of defalcation.
(3) You have five loans at insured depository institutions. Three
of them are 90 days past due. One of the three has an outstanding
balance of more than $50,000. The other two have outstanding balances
of less than $50,000. You do not have a pattern or practice of
defalcation.
(4) You have five loans at insured depository institutions. Three
of them have outstanding balances of more than $50,000. Two of those
three were 90 days past due but are now current. You do not have a
pattern or practice of defalcation.
Sec. 366.5 What causes a substantial loss to a federal deposit
insurance fund?
You cause a substantial loss to a federal deposit insurance fund
under Sec. 366.3(d) when you, or any person that owns or controls you,
or any entity you own or control has:
(a) An obligation to us that is delinquent for 90 days or more and
on which there is an outstanding balance of principal, interest, or a
combination thereof of more than $50,000;
(b) An unpaid final judgment in our favor that is in excess of
$50,000, regardless of whether it becomes discharged in whole or in
part in a bankruptcy proceeding;
(c) A deficiency balance following foreclosure of collateral on an
obligation owed to us that is in excess of $50,000, regardless of
whether it becomes discharged in whole or in part in a bankruptcy
proceeding; or
(d) A loss to us that is in excess of $50,000 that we report on IRS
Form 1099-C, Information Reporting for Discharge of Indebtedness.
Sec. 366.6 How is my ownership or control determined?
(a) Your ownership or control is determined on a case-by-case
basis. Your ownership or control depends on the specific facts of your
situation and the particular industry and legal entity involved. You
must provide documentation to us to use in determining your ownership
or control.
(b) The interest of a spouse or other family member in the same
organization is imputed to you in determining your ownership or
control.
(c) The following are examples of when your ownership or control
may or may not exist. These examples are not inclusive.
(1) You have control if you are the president or chief executive
officer of an organization.
(2) You have ownership or control if you are a partner in a small
law firm. You might not have ownership or control if you are a partner
in a large national law firm.
(3) You have control if you are a general partner of a limited
partnership. You have ownership or control if you have a limited
partnership interest of 25 percent or more.
(4) You have ownership or control if you have the:
(i) Power to vote, directly or indirectly, 25% or more interest of
any class of voting stock of a company;
(ii) Ability to direct in any manner the election of a majority of
a company's directors or trustees; or
(iii) Ability to exercise a controlling influence over the
company's management and policies.
Sec. 366.7 Will the FDIC waive the prohibitions under Sec. 366.3?
We may waive the prohibitions for entities other than individuals
for good cause shown at our discretion when our need to contract for
your services outweighs all relevant factors. The statute does not
allow us to waive the prohibitions for individuals.
Sec. 366.8 Who can grant a waiver of a prohibition or conflict of
interest?
The FDIC's Board of Directors delegates to the Chairman, or his
designee, authority to issue waivers and implement procedures for part
366.
Sec. 366.9 What other requirements could prevent me from performing
contractual services for the FDIC?
You must avoid a conflict of interest, be ethically responsible,
and maintain confidential information as described in Sec. Sec. 366.10
through 366.13. You must also provide us with the information we
require in Sec. 366.14. Failure to meet these requirements may prevent
you from contracting with us.
Sec. 366.10 When would I have a conflict of interest?
(a) You have a conflict of interest when you, any person that owns
or controls you, or any entity you own or control:
(1) Has a personal, business, or financial interest or relationship
that relates to the services you perform under the contract;
(2) Is a party to litigation against us, or represents a party that
is;
[[Page 69993]]
(3) Submits an offer to acquire an asset from us for which services
were performed during the past three years, unless the contract allows
for the acquisition; or
(4) Engages in an activity that would cause us to question the
integrity of the service you provided, are providing or offer to
provide us, or impairs your independence.
(b) The following are examples of a conflict of interest. These
examples are not inclusive.
(1) You submit an offer to perform property management services for
us and you own or manage a competing property.
(2) You audit a business under a contract with us and you or a
partner in your firm has an ownership interest in that business.
(3) You perform loan services on a pool of loans we are selling,
and you submit a bid to purchase one or more of the loans in the pool.
(4) You audit your own work or provide nonaudit services that are
significant or material to the subject matter of the audit.
Sec. 366.11 Will the FDIC waive a conflict of interest?
(a) We may waive a conflict of interest for good cause shown at our
discretion when our need to contract for your services outweighs all
relevant factors.
(b) The following are examples of when we may grant you a waiver
for a conflict of interest. These examples are not inclusive.
(1) We may grant a waiver to an outside counsel who has a
representational conflict. We will weigh all relevant facts and
circumstances in making our determination.
(2) We may grant a waiver to allow a contractor to acquire an asset
from us who is providing or has provided services on that asset. We
will consider whether granting the waiver will adversely affect the
fairness of the sale, the type of services provided, and other facts
and circumstances relevant to the sale in making our determination.
Sec. 366.12 What are the FDIC's minimum standards of ethical
responsibility?
(a) You and any person who performs services for us must not
provide preferential treatment to any person in your dealings with the
public on our behalf.
(b) You must ensure that any person you employ to perform services
for us is informed about their responsibilities under this part.
(c) You must disclose to us waste, fraud, abuse or corruption.
Contact the Inspector General at 1-800-964-FDIC or Ighotline@fdic.gov.
(d) You and any person who performs contract services to us must
not:
(1) Accept or solicit for yourself or others any favor, gift, or
other item of monetary value from any person who you reasonably believe
is seeking an official action from you on our behalf, or has an
interest that the performance or nonperformance of your duties to us
may substantially affect;
(2) Use or allow the use of our property, except as specified in
the contract;
(3) Make an unauthorized promise or commitment on our behalf; or
(4) Provide impermissible gifts or entertainment to an FDIC
employee or other person providing services to us.
(e) The following are examples of when you are engaging in
unethical behavior. These examples are not inclusive.
(1) Using government resources, including our Internet connection,
to conduct any business that is unrelated to the performance of your
contract with us.
(2) Submitting false invoices or claims, or making misleading or
false statements.
(3) Committing us to forgive or restructure a debt or portion of a
debt, unless we provide you with written authority to do so.
Sec. 366.13 What is my obligation regarding confidential information?
(a) Neither you nor any person who performs services on your behalf
may use or disclose information obtained from us or a third party in
connection with an FDIC contract, unless:
(1) The contract allows or we authorize the use or disclosure;
(2) The information is generally available to the general public;
or
(3) We make the information available to the general public.
(b) The following are examples of when your use of confidential
information is inappropriate. These examples are not inclusive.
(1) Disclosing information about an asset, such as internal asset
valuations, appraisals or environmental reports, except as part of
authorized due diligence materials, to a prospective asset purchaser.
(2) Disclosing a borrower's or guarantor's personal or financial
information, such as a financial statement to an unauthorized party.
Sec. 366.14 What information must I provide the FDIC?
You must:
(a) Certify in writing that you can perform services for us under
Sec. 366.3 and have no conflict of interest under Sec. 366.10(a).
(b) Submit a list and description of any instance during the
preceding five years in which you, any person that owns or controls
you, or any entity you own or control, defaulted on a material
obligation to an insured depository institution. A default on a
material obligation occurs when a loan or advance with an outstanding
balance of more than $50,000 is or was delinquent for 90 days or more.
(c) Notify us within 10 business days after you become aware that
you, or any person you employ to perform services for us, are not in
compliance with this part. Your notice must include a detailed
description of the facts of the situation and how you intend to resolve
the matter.
(d) Agree in writing that you will employ only persons who meet the
requirements of this part to perform services on our behalf.
(e) Comply with any request from us for information.
(f) Retain any information you prepare or rely upon regarding the
provisions of this part for a period of three years following
termination or expiration and final payment of the related contract for
services whichever occurs last.
Sec. 366.15 What advice or determinations will the FDIC provide me on
the applicability of this part?
(a) We are available to you for consultation on those
determinations you are responsible for making under this part,
including those with respect to any person you employ or engage to
perform services for us.
(b) We will determine if this part prohibits you from performing
services for us prior to contract award, after contract award, and
during the performance of a contract.
(c) We may determine what corrective action you must take.
(d) We may grant you a waiver for good cause shown where provided
for under this part.
Sec. 366.16 When may I seek a reconsideration or review of an FDIC
determination?
(a) You may seek reconsideration or review of our initial
determination by sending a written request to the individual who issued
you the initial decision.
(b) You must provide new information or explain a change in
circumstances for our reconsideration of an initial decision. The
individual who issued you the initial decision may either make a new
determination or refer your request to a higher authority for review.
(c) You must provide an explanation of how you perceive that we
misapplied
[[Page 69994]]
this part that sets forth the legal or factual errors for our review of
an initial decision.
Sec. 366.17 What are the possible consequences for violating this
part?
Depending on the circumstances, violations of this part may result
in rescission or termination of a contract, as well as administrative,
civil, or criminal sanctions.
Dated in Washington, DC, this 12th day of November, 2002.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 02-29407 Filed 11-19-02; 8:45 am]
BILLING CODE 6714-01-P