[Code of Federal Regulations]
[Title 5, Volume 3]
[Revised as of January 1, 2008]
From the U.S. Government Printing Office via GPO Access
[CITE: 5CFR2640.103]

[Page 655-659]
 
                    TITLE 5--ADMINISTRATIVE PERSONNEL
 
                CHAPTER XVI--OFFICE OF GOVERNMENT ETHICS
 
PART 2640_INTERPRETATION, EXEMPTIONS AND WAIVER GUIDANCE CONCERNING 18 U.S.C. 
 
                      Subpart A_General Provisions
 
Sec. 2640.103  Prohibition.

    (a) Statutory prohibition. Unless permitted by 18 U.S.C. 208(b) (1)-
(4), an employee is prohibited by 18 U.S.C. 208(a) from participating 
personally and substantially in an official capacity in any particular 
matter in which, to his knowledge, he or any other person specified in 
the statute has a financial interest, if the particular matter will have 
a direct and predictable effect on that interest. The restrictions of 18 
U.S.C. 208 are described more fully in 5 CFR 2635.401 and 2635.402.
    (1) Particular matter. The term ``particular matter'' includes only 
matters that involve deliberation, decision, or action that is focused 
upon the interests of specific persons, or a discrete and identifiable 
class of persons. The term may include matters which do not involve 
formal parties and may extend to legislation or policy making that is 
narrowly focused on the interests of a discrete and identifiable class 
of persons. It does not, however, cover consideration or adoption of 
broad policy options directed to the interests of a large and diverse 
group of persons. The particular matters covered by this part include a 
judicial or other proceeding, application or request for a ruling or 
other determination, contract, claim, controversy, charge, accusation or 
arrest.

    Example 1: The Overseas Private Investment Corporation decides to 
hire a contractor to conduct EEO training for its employees. The award 
of a contract for training services is a particular matter.
    Example 2: The spouse of a high level official of the Internal 
Revenue Service (IRS) requests a meeting on behalf of her client (a 
major U.S. corporation) with IRS officials to discuss a provision of IRS 
regulations governing depreciation of equipment. The spouse will be paid 
a fee by the corporation for arranging and attending the meeting. The 
consideration of the spouse's request and the decision to hold the 
meeting are particular matters in which the spouse has a financial 
interest.
    Example 3: A regulation published by the Department of Agriculture 
applicable only to companies that operate meat packing plants is a 
particular matter.
    Example 4: A change by the Department of Labor to health and safety 
regulations applicable to all employers in the United States is not a 
particular matter. The change in the regulations is directed to the 
interests of a large and diverse group of persons.
    Example 5: The allocation of additional resources to the 
investigation and prosecution of white collar crime by the Department of 
Justice is not a particular matter. Similarly, deliberations on the 
general merits of an omnibus bill such as the Tax Reform Act of 1986 are 
not sufficiently focused on the interests of specific persons, or a 
discrete and identifiable group of persons to constitute participation 
in a particular matter.
    Example 6: The recommendations of the Council of Economic Advisors 
to the President about appropriate policies to maintain economic growth 
and stability are not particular matters. Discussions about economic 
growth policies are directed to the interests of a large and diverse 
group of persons.
    Example 7: The formulation and implementation of the response of the 
United States to the military invasion of a U.S. ally is not a 
particular matter. General deliberations, decisions and actions 
concerning a response are based on a consideration of the political, 
military, diplomatic and economic interests of every sector of society 
and are too diffuse to be focused on the interests of specific 
individuals or entities. However, at the time consideration is given to 
actions focused on specific individuals or entities, or a discrete and 
identifiable class of individuals or entities, the matters under 
consideration would be particular matters. These would include, for 
example, discussions whether to close a particular oil pumping station 
or pipeline in the area where hostilities are taking place, or a 
decision to seize a particular oil field or oil tanker.
    Example 8: A legislative proposal for broad health care reform is 
not a particular matter because it is not focused on the interests of

[[Page 656]]

specific persons, or a discrete and identifiable class of persons. It is 
intended to affect every person in the United States. However, 
consideration and implementation, through regulations, of a section of 
the health care bill limiting the amount that can be charged for 
prescription drugs is sufficiently focused on the interests of 
pharmaceutical companies that it would be a particular matter.

    (2) Personal and substantial participation. To participate 
``personally'' means to participate directly. It includes the direct and 
active supervision of the participation of a subordinate in the matter. 
To participate ``substantially'' means that the employee's involvement 
is of significance to the matter. Participation may be substantial even 
though it is not determinative of the outcome of a particular matter. 
However, it requires more than official responsibility, knowledge, 
perfunctory involvement, or involvement on an administrative or 
peripheral issue. A finding of substantiality should be based not only 
on the effort devoted to the matter, but also on the importance of the 
effort. While a series of peripheral involvements may be insubstantial, 
the single act of approving or participating in a critical step may be 
substantial. Personal and substantial participation may occur when, for 
example, an employee participates through decision, approval, 
disapproval, recommendation, investigation or the rendering of advice in 
a particular matter.

    Example 1 to paragraph (a)(2): An agency's Office of Enforcement is 
investigating the allegedly fraudulent marketing practices of a major 
corporation. One of the agency's personnel specialists is asked to 
provide information to the Office of Enforcement about the agency's 
personnel ceiling so that the Office can determine whether new employees 
can be hired to work on the investigation. The employee personnel 
specialist owns $20,000 worth of stock in the corporation that is the 
target of the investigation. She does not have a disqualifying financial 
interest in the matter (the investigation and possible subsequent 
enforcement proceedings) because her involvement is on a peripheral 
personnel issue and her participation cannot be considered 
``substantial'' as defined in the statute.

    (3) Direct and predictable effect. (i) A particular matter will have 
a ``direct'' effect on a financial interest if there is a close causal 
link between any decision or action to be taken in the matter and any 
expected effect of the matter on the financial interest. An effect may 
be direct even though it does not occur immediately. A particular matter 
will not have a direct effect on a financial interest, however, if the 
chain of causation is attenuated or is contingent upon the occurrence of 
events that are speculative or that are independent of, and unrelated 
to, the matter. A particular matter that has an effect on a financial 
interest only as a consequence of its effects on the general economy 
does not have a direct effect within the meaning of this part.
    (ii) A particular matter will have a ``predictable'' effect if there 
is a real, as opposed to a speculative, possibility that the matter will 
affect the financial interest. It is not necessary, however, that the 
magnitude of the gain or loss be known, and the dollar amount of the 
gain or loss is immaterial.

    Example 1: An attorney at the Department of Justice is working on a 
case in which several large companies are defendants. If the Department 
wins the case, the defendants may be required to reimburse the Federal 
Government for their failure to adequately perform work under several 
contracts with the Government. The attorney's spouse is a salaried 
employee of one of the companies, working in a division that has no 
involvement in any of the contracts. She does not participate in any 
bonus or benefit plans tied to the profitability of the company, nor 
does she own stock in the company. Because there is no evidence that the 
case will have a direct and predictable effect on whether the spouse 
will retain her job or maintain the level of her salary, or whether the 
company will undergo any reorganization that would affect her interests, 
the attorney would not have a disqualifying financial interest in the 
matter. However, the attorney must consider, under the requirements of 
Sec. 2635.502 of this chapter, whether his impartiality would be 
questioned if he continues to work on the case.
    Example 2: A special Government employee (SGE) whose principal 
employment is as a researcher at a major university is appointed to 
serve on an advisory committee that will evaluate the safety and 
effectiveness of a new medical device to regulate arrhythmic heartbeats. 
The device is being developed by Alpha Medical Inc., a company which 
also has contracted with the SGE's university to assist in developing 
another medical device related to kidney dialysis. There is no evidence 
that the advisory committee's determinations concerning the medical 
device

[[Page 657]]

under review will affect Alpha Medical's contract with the university to 
develop the kidney dialysis device. The SGE may participate in the 
committee's deliberations because those deliberations will not have a 
direct and predictable effect on the financial interests of the 
researcher or his employer.
    Example 3: The SGE in the preceding example is instead asked to 
serve on an advisory committee that has been convened to conduct a 
preliminary evaluation of the new kidney dialysis device developed by 
Alpha Medical under contract with the employee's university. Alpha's 
contract with the university requires the university to undertake 
additional testing of the device to address issues raised by the 
committee during its review. The committee's actions will have a direct 
and predictable effect on the university's financial interest.
    Example 4: An engineer at the Environmental Protection Agency (EPA) 
was formerly employed by Waste Management, Inc., a corporation subject 
to EPA's regulations concerning the disposal of hazardous waste 
materials. Waste Management is a large corporation, with less than 5% of 
its profits derived from handling hazardous waste materials. The 
engineer has a vested interest in a defined benefit pension plan 
sponsored by Waste Management which guarantees that he will receive 
payments of $500 per month beginning at age 62. As an employee of EPA, 
the engineer has been assigned to evaluate Waste Management's compliance 
with EPA hazardous waste regulations. There is no evidence that the 
engineer's monitoring activities will affect Waste Management's ability 
or willingness to pay his pension benefits when he is entitled to 
receive them at age 62. Therefore, the EPA's monitoring activities will 
not have a direct and predictable effect on the employee's financial 
interest in his Waste Management pension. However, the engineer should 
consider whether, under the standards set forth in 5 CFR 2635.502, a 
reasonable person would question his impartiality if he acts in a matter 
in which Waste Management is a party.

    (b) Disqualifying financial interests. For purposes of 18 U.S.C. 
208(a) and this part, the term financial interest means the potential 
for gain or loss to the employee, or other person specified in section 
208, as a result of governmental action on the particular matter. The 
disqualifying financial interest might arise from ownership of certain 
financial instruments or investments such as stock, bonds, mutual funds, 
or real estate. Additionally, a disqualifying financial interest might 
derive from a salary, indebtedness, job offer, or any similar interest 
that may be affected by the matter.

    Example 1: An employee of the Department of the Interior owns 
transportation bonds issued by the State of Minnesota. The proceeds of 
the bonds will be used to fund improvements to certain State highways. 
In her official position, the employee is evaluating an application from 
Minnesota for a grant to support a State wildlife refuge. The employee's 
ownership of the transportation bonds does not create a disqualifying 
financial interest in Minnesota's application for wildlife funds because 
approval or disapproval of the grant will not in any way affect the 
current value of the bonds or have a direct and predictable effect on 
the State's ability or willingness to honor its obligation to pay the 
bonds when they mature.
    Example 2: An employee of the Bureau of Land Management owns 
undeveloped land adjacent to Federal lands in New Mexico. A portion of 
the Federal land will be leased by the Bureau to a mining company for 
exploration and development, resulting in an increase in the value of 
the surrounding privately owned land, including that owned by the 
employee. The employee has a financial interest in the lease of the 
Federal land to the mining company and, therefore, cannot participate in 
Bureau matters involving the lease unless he obtains an individual 
waiver pursuant to 18 U.S.C. 208(b)(1).
    Example 3: A special Government employee serving on an advisory 
committee studying the safety and effectiveness of a new arthritis drug 
is a practicing physician with a specialty in treating arthritis. The 
drug being studied by the committee would be a low cost alternative to 
current treatments for arthritis. If the drug is ultimately approved, 
the physician will be able to prescribe the less expensive drug. The 
physician does not own stock in, or hold any position, or have any 
business relationship with the company developing the drug. Moreover, 
there is no indication that the availability of a less expensive 
treatment for arthritis will increase the volume and profitability of 
the doctor's private practice. Accordingly, the physician has no 
disqualifying financial interest in the actions of the advisory 
committee.

    (c) Interests of others. The financial interests of the following 
persons will serve to disqualify an employee to the same extent as the 
employee's own interests:
    (1) The employee's spouse;
    (2) The employee's minor child;
    (3) The employee's general partner;
    (4) An organization or entity which the employee serves as officer, 
director, trustee, general partner, or employee; and

[[Page 658]]

    (5) A person with whom the employee is negotiating for, or has an 
arrangement concerning, prospective employment.

    Example 1: An employee of the Consumer Product Safety Commission 
(CPSC) has two minor children who have inherited shares of stock from 
their grandparents in a company that manufactures small appliances. 
Unless an exemption is applicable under Sec. 2640.202 or he obtains a 
waiver under 18 U.S.C. 208(b)(1), the employee is disqualified from 
participating in a CPSC proceeding to require the manufacturer to remove 
a defective appliance from the market.
    Example 2: A newly appointed employee of the Department of Housing 
and Urban Development (HUD) is a general partner with three former 
business associates in a partnership that owns a travel agency. The 
employee knows that his three general partners are also partners in 
another partnership that owns a HUD-subsidized housing project. Unless 
he receives a waiver pursuant to 18 U.S.C. 208(b)(1) permitting him to 
act, the employee must disqualify himself from particular matters 
involving the HUD-subsidized project which his general partners own.
    Example 3: The spouse of an employee of the Department of Health and 
Human Services (HHS) works for a consulting firm that provides support 
services to colleges and universities on research projects they are 
conducting under grants from HHS. The spouse is a salaried employee who 
has no direct ownership interest in the firm such as through 
stockholding, and the award of a grant to a particular university will 
have no direct and predictable effect on his continued employment or his 
salary. Because the award of a grant will not affect the spouse's 
financial interest, section 208 would not bar the HHS employee from 
participating in the award of a grant to a university to which the 
consulting firm will provide services. However, the employee should 
consider whether her participation in the award of the grant would be 
barred under the impartiality provision in the Standards of Ethical 
Conduct for Employees of the Executive Branch at 5 CFR 2635.502.

    (d) Disqualification. Unless the employee is authorized to 
participate in the particular matter by virtue of an exemption or waiver 
described in subpart B or subpart C of this part, or the interest has 
been divested in accordance with paragraph (e) of this section, an 
employee shall disqualify himself from participating in a particular 
matter in which, to his knowledge, he or any other person specified in 
the statute has a financial interest, if the particular matter will have 
a direct and predictable effect on that interest. Disqualification is 
accomplished by not participating in the particular matter.
    (1) Notification. An employee who becomes aware of the need to 
disqualify himself from participation in a particular matter to which he 
has been assigned should notify the person responsible for his 
assignment. An employee who is responsible for his own assignments 
should take whatever steps are necessary to ensure that he does not 
participate in the matter from which he is disqualified. Appropriate 
oral or written notification of the employee's disqualification may be 
made to coworkers by the employee or a supervisor to ensure that the 
employee is not involved in a matter from which he is disqualified.
    (2) Documentation. An employee need not file a written 
disqualification statement unless he is required by part 2634 of this 
chapter to file written evidence of compliance with an ethics agreement 
with the Office of Government Ethics, is asked by an agency ethics 
official or the person responsible for his assignment to file a written 
disqualification statement, or is required to do so by agency 
supplemental regulation issued pursuant to 5 CFR 2635.105. However, an 
employee may elect to create a record of his actions by providing 
written notice to a supervisor or other appropriate official.

    Example 1: The supervisor of an employee of the Department of 
Education asks the employee to attend a meeting on his behalf on 
developing national standards for science education in secondary 
schools. When the employee arrives for the meeting, she realizes one of 
the participants is the president of Education Consulting Associates 
(ECA), a firm which has been awarded a contract to prepare a bulletin 
describing the Department's policies on science education standards. The 
employee's spouse has a subcontract with ECA to provide the graphics and 
charts that will be used in the bulletin. Because the employee realizes 
that the meeting will involve matters relating to the production of the 
bulletin, the employee properly decides that she must disqualify herself 
from participating in the discussions. After withdrawing from the 
meeting, the employee should notify her supervisor about the reason for 
her disqualification. She may elect to put her disqualification 
statement in writing, or to simply notify her supervisor

[[Page 659]]

orally. She may also elect to notify appropriate coworkers about her 
need to disqualify herself from this matter.

    (e) Divestiture of a disqualifying financial interest. Upon sale or 
other divestiture of the asset or other interest that causes his 
disqualification from participation in a particular matter, an employee 
is no longer prohibited from acting in the particular matter.
    (1) Voluntary divestiture. An employee who would otherwise be 
disqualified from participation in a particular matter may voluntarily 
sell or otherwise divest himself of the interest that causes the 
disqualification.
    (2) Directed divestiture. An employee may be required to sell or 
otherwise divest himself of the disqualifying financial interest if his 
continued holding of that interest is prohibited by statute or by agency 
supplemental regulation issued in accordance with Sec. 2635.403(a) of 
this chapter, or if the agency determines in accordance with Sec. 
2635.403(b) of this chapter that a substantial conflict exists between 
the financial interest and the employee's duties or accomplishment of 
the agency's mission.
    (3) Eligibility for special tax treatment. An employee who is 
directed to divest an interest may be eligible to defer the tax 
consequences of divestiture under subpart J of part 2634 of this 
chapter. An employee who divests before obtaining a certificate of 
divestiture will not be eligible for this special tax treatment.
    (f) Official duties that give rise to potential conflicts. Where an 
employee's official duties create a substantial likelihood that the 
employee may be assigned to a particular matter from which he is 
disqualified, the employee should advise his supervisor or other person 
responsible for his assignments of that potential so that conflicting 
assignments can be avoided, consistent with the agency's needs.

[61 FR 66841, Dec. 18, 1996, as amended at 67 FR 12445, Mar. 19, 2002]