Rule2023-10290
Legal Expense Fund Regulation
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 25, 2023
Effective
November 21, 2023
Issuing agencies
Government Ethics Office
Abstract
The U.S. Office of Government Ethics (OGE) is adding a new subpart to the Standards of Ethical Conduct for Employees of the Executive Branch (Standards). The new subpart contains the standards for an employee's acceptance of payments for legal expenses through a legal expense fund and an employee's acceptance of pro bono legal services for a matter arising in connection with the employee's official position, the employee's prior position on a campaign of a candidate for President or Vice President, or the employee's prior position on a Presidential Transition Team. OGE is also making related amendments to the portions of the Standards that govern the solicitation and acceptance of gifts from outside sources and the portions of the Executive Branch Financial Disclosure regulation that govern confidential financial disclosure reports.
Full Text
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[Federal Register Volume 88, Number 101 (Thursday, May 25, 2023)]
[Rules and Regulations]
[Pages 33799-33815]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10290]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 88, No. 101 / Thursday, May 25, 2023 / Rules
and Regulations
[[Page 33799]]
OFFICE OF GOVERNMENT ETHICS
5 CFR Parts 2634 and 2635
RIN 3209-AA50
Legal Expense Fund Regulation
AGENCY: Office of Government Ethics.
ACTION: Final rule.
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SUMMARY: The U.S. Office of Government Ethics (OGE) is adding a new
subpart to the Standards of Ethical Conduct for Employees of the
Executive Branch (Standards). The new subpart contains the standards
for an employee's acceptance of payments for legal expenses through a
legal expense fund and an employee's acceptance of pro bono legal
services for a matter arising in connection with the employee's
official position, the employee's prior position on a campaign of a
candidate for President or Vice President, or the employee's prior
position on a Presidential Transition Team. OGE is also making related
amendments to the portions of the Standards that govern the
solicitation and acceptance of gifts from outside sources and the
portions of the Executive Branch Financial Disclosure regulation that
govern confidential financial disclosure reports.
DATES: This rule is effective November 21, 2023.
FOR FURTHER INFORMATION CONTACT: Maura Leary, Associate Counsel, or
Heather Jones, Senior Counsel for Financial Disclosure, General Counsel
and Legal Policy Division, Office of Government Ethics, Suite 500, 1201
New York Avenue NW, Washington, DC 20005-3917; Telephone: (202) 482-
9300; TTY: (800) 877-8339; FAX: (202) 482-9237.
SUPPLEMENTARY INFORMATION:
I. Background
The U.S. Office of Government Ethics (OGE) published a proposed
rule in the Federal Register, 87 FR 23769 (Apr. 21, 2022), proposing to
amend both 5 CFR part 2634, Executive Branch, Financial Disclosure,
Qualified Trusts, and Certificates of Divesture, and 5 CFR part 2635,
Standards of Ethical Conduct for Employees of the Executive Branch, to
establish a framework to govern an executive branch employee's
acceptance of both payments for legal expenses through a Legal Expense
Fund (LEF) and pro bono legal services for matters arising in
connection with the employee's past or current official position, the
employee's prior position on a campaign of a candidate for President or
Vice President, or the employee's prior position on a Presidential
Transition Team.
Before proposing the Legal Expense Fund rule, OGE sought public
input through an advance notice of proposed rulemaking (ANPRM), see
Notice and Request for Comments: Legal Expense Fund Regulation, 84 FR
15146 (Apr. 15, 2019), and at two public meetings, see Announcement of
Public Meeting: Legal Expense Fund Regulation, 84 FR 50791 (Sept. 26,
2019). In addition to seeking public input, OGE consulted with
executive branch ethics officials and with the Department of Justice
and the Office of Personnel Management pursuant to section 201(a) of
Executive Order 12674, as modified by Executive Order 12731, and the
authorities contained in 5 U.S.C. 13122.
The proposed rule provided a 60-day comment period, which ended on
June 21, 2022. OGE received 6,916 timely and responsive comments, which
were submitted by six organizations and 6,910 individuals. After
carefully considering the comments and the input provided before and in
response to the proposed rule's publication, and making appropriate
modifications, OGE is publishing this final rule. The rationale for the
rule can be found in the preamble to the proposed rule at: <a href="https://www.govinfo.gov/content/pkg/FR-2022-04-21/pdf/2022-08130.pdf">https://www.govinfo.gov/content/pkg/FR-2022-04-21/pdf/2022-08130.pdf</a>.
This rule will be effective 180 days after publication to allow OGE
to implement procedures, provide training, and publish guidance
regarding this new ethics program. It will also allow agencies to
consider staffing needs and their own internal procedures.
II. Comments
OGE received nearly 7,000 comments from both organizations and
individuals. The comments are publically posted on OGE's website and
can be found at this address: <a href="https://www.oge.gov/web/OGE.nsf/All+docs+By+Cat/417908CAB842A8128525887E004D262C">https://www.oge.gov/web/OGE.nsf/All+docs+By+Cat/417908CAB842A8128525887E004D262C</a>. Many of the
commenters provided feedback on several different sections of the
proposed rule. OGE has reviewed and considered each comment submitted;
comments are discussed below in the context of the particular subparts
or sections to which they pertain. OGE is not discussing comments that
were either generally supportive of the regulation or generally
critical of the regulation; however, OGE weighed both support and
criticism when considering any possible changes in response to other
comments. In addition, OGE does not specifically discuss comments that
address issues outside the scope of the regulation.
OGE received 6,907 comments from individuals that all asked OGE to
take the following actions: (1) make compliance with the regulation
mandatory; (2) require employee beneficiaries to recuse from particular
matters involving donors to their legal expense funds for five years;
(3) remove a particular example; and (4) allow nonprofits to hire
outside pro bono counsel. OGE addresses each of these comments below in
the applicable section, and portions of the regulation were revised to
address the concerns raised.
In the proposed rule, OGE specifically solicited comments on: (1)
whether multi-beneficiary trusts should be permitted; (2) whether
501(c)(3) and 501(c)(4) organizations should be permitted to make
donations to legal expense funds; and (3) whether 501(c)(3) and
501(c)(4) organizations may hire attorneys outside their organization
to provide free or reduced cost legal services for employees. The
weight of the comments supported single-beneficiary trusts and opposed
allowing 501(c)(4) organizations to donate to legal expense funds or
pay for outside legal representation. Although commenters were more
divided on the question of allowing 501(c)(3) organizations to donate
to legal expense funds and to pay for outside legal representation, the
weight of the comments favored allowing such organizations to do both.
As discussed in more detail in the relevant sections below, the rule
has been revised to
[[Page 33800]]
permit 501(c)(3) organizations to donate to legal expense funds and pay
for outside legal services.
Finally, OGE, in adopting this final rule, has corrected a few
typographical errors and made a few other minor clarifying revisions to
the rule as proposed.
General Comments
Several comments from individuals encouraged OGE to expand the
regulation to cover employees of the legislative and judicial branches.
Pursuant to 5 U.S.C. 13122(b)(1), OGE only is permitted to draft
regulations that apply to executive branch employees. The Ethics in
Government Act designated a supervising ethics office for each branch
of government and, within the legislative branch, separate offices for
the House and Senate. See 5 U.S.C. 13101(18). Each supervising ethics
office is responsible for promulgating ethics rules that apply to the
employees of that branch or congressional body.
One commenter asked that OGE amend the definition of ``covered
relationship'' in Sec. 2635.502(b)(1) to include the trustee and
donors of a legal expense fund established under subpart J of part 2635
and the provider of any pro bono legal services to employees. OGE first
notes that the relationship between an employee beneficiary and their
trustee is a ``contractual . . . relationship that involves other than
a routine consumer transaction'' and thus would already be covered by
Sec. 2635.502(b)(1)(i). Second, OGE has amended the regulation to
reflect that the legal expense fund recusal is not a ``covered
relationship'' recusal under Sec. 2635.502. Instead, OGE is requiring
employee beneficiaries to abide by a mandatory two-year recusal from
matters affecting any trustee, donor of legal expense payments, or
provider of pro bono services. OGE does not want to create confusion as
to whether the Sec. 2635.502 recusals or the more stringent legal
expense fund recusals apply, so OGE is electing not to include these
relationships as covered relationships under Sec. 2635.502.
Several individual commenters suggested that OGE ban all legal
expense funds. OGE has determined that this approach would
significantly limit access to legal services for all but the wealthiest
executive branch employees. While OGE historically has provided
guidance to help ensure that executive branch employees who may receive
distributions from an LEF are in compliance with existing ethics laws
and rules, OGE believes that the proposed regulation, which creates
much more robust limitations on the acceptance of payments for legal
expenses and imposes significant transparency requirements, is the
preferred and appropriate course.
Two organizations commented that the rule was vague about which
funds must be routed through a legal expense fund and suggested that
items such as pre-paid legal service plans, credit cards, or ``private
borrowing from family members and close friends'' are covered by
subpart J. OGE first notes that routine market arrangements, such as a
pre-paid service plan or the use of a credit card, are not gifts as
defined in subpart B and therefore would not be required to be routed
through a legal expense fund. Second, OGE notes that if, for example,
an employee received a below market rate loan from a family member or
close friend, it would qualify under the personal relationship
exception at Sec. 2635.204(b), and the employee could accept the loan
under that subpart B exception rather than subpart J. OGE included the
provision at Sec. 2635.1002(b) specifically to address circumstances
such as ``private borrowing from family members or close friends,'' as
raised by the commenter. Accordingly, OGE believes the regulation is
sufficiently clear about which legal expense payments must be accepted
using subpart J.
Several individual commenters suggested making contributions from
legal expense funds taxable income. The Internal Revenue Service makes
determinations about what income is taxable, and such a determination
is outside of OGE's jurisdiction.
Several commenters asked that OGE address the political pressure
that can be applied by withholding funds from employee witnesses. In
response to OGE's ANPRM, numerous organizations and individuals
expressed the desire for legal expense funds to be structured only as
trusts with single beneficiaries to guard against such pressure. See
May 22, 2019 Public Hearing Transcript, https://www.oge.gov/web/
OGE.nsf/0/DB24D09F28472B82852585B6005A2206/$FILE/Transcript.pdf;
Written Comments to ANPRM, https://www.oge.gov/web/OGE.nsf/0/
FE8D43CE6A038852852585B6005A2293/$FILE/
ANPRM%20Legal%20Expense%20Fund%20Regulation%20-
%20Written%20Comments.pdf. The commenters noted that, unlike legal
expense funds with multiple beneficiaries, trustees of single-
beneficiary trusts have a fiduciary duty to the sole beneficiary. The
structure of trusts with single beneficiaries, in the words of one
commenter, ``provides the best protection for public servants, who can
be certain that distributions will not be withheld or disbursed
according to political pressures.'' Accordingly, OGE is electing to
require that legal expense funds be trusts with a single beneficiary.
OGE received one comment from an organization in support of the
existing penalties in the regulation, including the penalties for
impermissible donations. Several comments from individuals requested
stricter penalties, including imprisonment, for noncompliance with the
regulation. OGE believes the remedies in the regulation strike the
appropriate balance for noncompliance. Section 1007(h) requires the
fund to return impermissible donations and requires the beneficiary to
forfeit the ability to accept donations and make distributions if a
quarterly report is late. In addition, OGE has reserved both the right
to prohibit the fund from either accepting donations or making
distributions and the right to terminate the trust if there is
significant noncompliance. Finally, while violation of the substantive
requirements of a regulation cannot be criminal, the criminal penalties
for knowingly making a false statement to the government will apply to
the documents and reports filed pursuant to this regulation.
A. Subpart J of the Standards
Section 2635.1002: Applicability and Related Considerations
One commenter asked that Sec. 2635.1002 explicitly state that
referring to an employee's official position in a legal expense fund
solicitation does not violate subpart G. OGE did not adopt this
suggestion, because an employee could reference their position in a way
that would violate subpart G--in fact, Sec. 2635.1002(c)(3)
specifically requires that employees comply with subpart G in
soliciting donations. However, OGE is adding language to Sec.
2635.1002(c)(3) to clarify that the mere reference of the employee's
official position in a solicitation does not in itself violate subpart
G.
Two organizations objected to the regulation's scope being
restricted to those legal matters arising in connection with the
employee's past or current official position, calling it a disparate
burden on employment law litigation. Payments for legal services that
arise out of an executive branch employee's federal employment or
service on a campaign raise more significant appearance and misuse
concerns than payments for purely personal legal services. Numerous
stakeholders, from public interest organizations to U.S.
[[Page 33801]]
Senators, have noted that legal expense funds previously established to
defray the costs of legal expenses connected to government service have
created heightened concern. Specifically, stakeholders have expressed
concerns about the potential for donors to influence employees'
official actions or witness statements, the difficulty of screening for
prohibited donors, and the lack of transparency for legal expense
donations to those in federal service. OGE has addressed this
heightened appearance concern by specifically regulating payments for
legal expenses arising out of an employee's past or current official
position, limiting who may donate to employee legal expense funds, and
requiring public disclosure of such donations.
Moreover, OGE is specifically directed by E.O. 12674 (as modified
by E.O. 12731) to promulgate regulations addressing fundamental ethics
principles such as prohibiting the use of public office for private
gain and avoiding actions that create the appearance of a violation of
a law or regulation. This directive supports regulating only legal
expense payments connected to government service, as receipt of such
payments for legal expenses could be viewed as using a public position
for personal gain or creating the appearance of violating a law or
regulation.
One organization commented that the regulation as drafted would not
address the concerns about potential corruption raised by Senators in
their letter to the Director (Letter from Senator Margaret Hassan et.
al., Aug. 2, 2018, <a href="https://www.hassan.senate.gov/imo/media/doc/RoundsPatriotFundLetterSIGNED.180802.pdf">https://www.hassan.senate.gov/imo/media/doc/RoundsPatriotFundLetterSIGNED.180802.pdf</a>). In that letter, the Senators
specifically raised concerns about transparency and funds with multiple
beneficiaries, which make screening donations difficult and could allow
the trustee to prioritize certain employee beneficiaries.
When drafting the proposed regulation, OGE addressed the Senators'
concerns about multiple beneficiaries by prohibiting executive branch
employees from accepting payments for legal expenses from an LEF that
has multiple beneficiaries. In addition, to promote transparency, the
proposed regulation requires both that the trust document be made
publicly available, and that all payments of $250 or more be reported
quarterly and posted publicly on OGE's website. The proposed regulation
also limits the amount a single donor can donate and prohibits
donations from businesses and lobbyists. Finally, the proposed rule
requires that any existing legal expense fund not structured as
required by subpart J come into compliance within 90 calendar days of
the rule going into effect, or use of the fund to pay legal expenses
will violate the Standards of Conduct.
Two organizations and 6,907 commenters objected to the language in
Sec. 2635.1002(b)(2), stating that legal expense fund payments and pro
bono services that otherwise qualify for a subpart B gift exception or
exclusion are not covered by this subpart (and thus are not subject to
the trust, quarterly reporting, and transparency requirements). Many
commenters stated that this language made the regulation optional, and
the two organizations requested that subpart J be the exclusive means
for accepting legal expense fund payments. One organization
characterized the provision as ``allow[ing] executive branch officials
to continue relying on the gift rule exclusions and exceptions they
have historically cited to justify legal expense funds.''
Compliance with the requirements of subpart J is mandatory.
Importantly, this regulation specifically clarifies that payments for
legal expenses arising from an employee's past or current official
position are given because of the employee's official position, and
thus may not be accepted unless the employee complies with the gift
rules. Accordingly, any gift of legal expenses or pro bono services
arising out of an employee's past or current official position must
comply with all the requirements of subpart J or conform to a narrow,
pre-existing subpart B exception. Executive branch officials will not
be able to rely on the historical interpretation that legal expenses
could be excluded from the gift regulations under subpart B by
determining that such expenses are not given because of their official
position.
The only two subpart B exceptions likely to be used in practice are
Sec. 2635.204(b), which requires a determination that the donation is
clearly motivated by a family relationship or personal friendship; and
Sec. 2635.204(c), which allows employees to accept free or discounted
legal services from an established employee organization, such as a
union or an employee welfare organization. Maintaining these two narrow
exceptions would allow less well-connected employees to accept help
with legal expenses from, for example, their spouse, their parents, or
their union.
Several individuals requested that the regulation cap donations
from family and friends at the same amount as everyone else. Such
donations--which, by definition, must be given under circumstances that
make clear that the gift is motivated by a family relationship or close
personal friendship--are much less likely to raise appearance concerns.
Accordingly, OGE is declining to make this change.
One organization and 6,907 individuals commented that the
requirement that employees recuse from particular matters affecting
donors for one year was too short, and requested that employees recuse
from such matters for five years instead. A second organization asked
for the recusal period to apply through the lifetime of the legal
expense fund, and then recommended instituting different lengths of
time for the recusal depending on the amount of money donated (e.g.,
one-year recusal for under $5,000, four-year recusal for over $5,000).
Individual commenters suggested recusal periods ranging from two to ten
years. One organization also objected to use of the Sec. 2635.502
impartiality standard because it relies on the reasonable person
standard and because an agency can authorize an employee to participate
notwithstanding impartiality concerns. In response to these comments,
OGE is revising the regulation as follows: Employee beneficiaries will
have a two-year recusal for donors donating $250 or more in a calendar
year, starting from the time of each donor's most recent donation.
Further, this recusal will be mandatory, with no written authorization
option.
Two organizations also asked for the recusal to apply to both
particular matters involving specific parties and particular matters of
general applicability. OGE declines to adopt this proposal; recusals
will be required only for particular matters involving specific
parties. If recusals were extended to particular matters of general
applicability, as proposed by the commenters, it would make legal
expense funds unworkable for employees at the many agencies whose
missions affect large and diverse sectors of the public. In addition,
identifying which particular matter of general applicability would
affect each donor to a trust would be extremely difficult.
OGE further notes that donors are limited to individuals, political
parties, and 501(c)(3) organizations; for these donors, OGE believes
that particular matters involving specific parties present the primary
impartiality risk. Although 501(c)(3) organizations often work on
policy issues that would be considered particular matters of general
applicability, they typically do not have a financial interest in those
particular
[[Page 33802]]
matters of general applicability (see OGE DAEOgram DO-06-002 (Jan. 19,
2006), discussing OLC's conclusion that a nonprofit organization does
not have a financial interest in a particular matter on which it spends
funds to advocate its policy position solely because of those
expenditures). As a result, OGE does not believe a mandatory recusal
for particular matters of general applicability is appropriate.
One commenter recommended that OGE require employee beneficiaries
to certify in writing that they have notified their pro bono attorney
of their financial reporting obligations, if any, and that the attorney
has agreed to provide them with documentation of any services provided
each year so that they may properly report any gifts. In response, OGE
notes that Sec. 2635.1009 explicitly reminds financial disclosure
filers that pro bono services must be reported as gifts on their
financial disclosure forms and, per Sec. 2634.602(a), filers must
certify that the financial disclosure reports are true and correct.
Requiring further certification would create inconsistency and
unnecessary redundancy in the gift reporting requirement for financial
disclosure filers, and therefore OGE is not requiring such
certification.
Section 2635.1003: Definitions
OGE received one comment that OGE should modify Sec. 2635.1003 to
emphasize that ``arising in connection with an employee's past or
current official position'' does not cover assisting individuals with
presidential nominations for Senate-confirmed positions. Because the
concept of ``official position'' is regularly employed throughout the
Standards, OGE does not believe such a change to the regulation is
necessary. For example, if an executive branch employee assisted a
nominee in the course of their official duties or in the course of
their duties on the Presidential Transition Team, and a legal issue
arose as a result of their official work or work for the transition
team, that employee could establish a legal expense fund pursuant to
subpart J. If, however, before an individual's executive branch
employment, that individual assisted a nominee in the individual's
personal capacity, then the legal issues would not arise from the
individual's official position and the individual could not utilize
subpart J to establish a legal expense fund. In addition, executive
branch employees in Senate-confirmed positions would not be permitted
to establish legal expense funds to defray the costs associated with
the nomination and confirmation process, because those costs are
expenses that do not arise from that employee's official executive
branch position.
One organization also requested that OGE treat contingency fee
arrangements like pro bono arrangements, requiring pre-approval by
agency ethics officials. The organization was primarily concerned with
contingency fees being paid by third parties. Although OGE understands
the concern, OGE does not believe that differentiating between
contingency fees and other fee structures is appropriate, as OGE
considers a contingency fee structure to be a regular market
arrangement and not a gift. Payments by third parties for any legal
services arrangement--contingency fees or any other fee structure--must
comply with subpart J or an applicable exception or exclusion in
subpart B.
One organization and 6,907 individuals commented that the example
to the definition of ``arising in connection with the employee's past
or current official position,'' was offensive. The example illustrates
that a military officer accused of sexual harassment off duty would be
required to follow the subpart J requirements should that officer wish
to accept payments for legal expenses from anyone other than family,
close friends, or qualifying employee organizations, because the
officer's after-work conduct is subject to the Uniform Code of Military
Justice and thus arises out of the officer's official position. Several
other individual commenters expressed opposition to the idea that
employees accused of bad behavior would be able to fundraise for their
defense. OGE has revised the example in the final rule. OGE would like
to highlight, however, that nothing in this regulation should be
construed as restricting an employee's access to a legal defense based
on the nature of the allegations giving rise to the need for a defense
fund.
Two organizations objected to the definition of ``pro bono legal
services'' in proposed Sec. 2635.1003 as too vague, specifically
noting that there is ambiguity about whether the definition is limited
to direct, representational legal services (not extending to, for
example, amicus briefs). OGE intends the regulatory definition of pro
bono legal services to mean direct, representational services. OGE will
provide further guidance on this issue as needed.
OGE received several comments asking to broaden the definition of
``whistleblower'' beyond employees making protected reports or
disclosures under the Whistleblower Protection Act (5 U.S.C.
2302(b)(8)) and the listed related statutes. OGE believes that a clear,
objective definition of the term ``whistleblower'' is appropriate. In
addition, OGE does not want the definition to be overbroad because of
the public interest in transparency in this area and thus declines to
broaden the definition of ``whistleblower.''
Section 2635.1004: Establishment
Two organizations objected to the requirement for a trust structure
as unduly burdensome for public employees. Three organizations
commented that they strongly supported the trust structure as drafted.
OGE weighed these comments, as well as prior comments on this issue, in
choosing to require the use of single-beneficiary trusts in drafting
the final regulation. In addition, one organization commented that OGE
was not taking into account the burden of seeking approval for every
pro bono representation, and that the overall administrative burden of
the regulation would outweigh any plausible benefit to employees.
OGE understands the concerns of the commenters objecting to the
trust structure, and weighed the additional burden of establishing a
trust on employees when drafting the proposed rule. However, a number
of factors support a trust requirement. First, trusts offer the benefit
of having a fiduciary act on behalf of a single employee and therefore
in that employee's interest. Second, requiring a trust is consistent
with the Legal Expense Fund regulations governing House and Senate
employees. Third, the trust requirement creates a uniform system for
approval for every executive branch employee, which ensures that each
employee is treated equally and also eases the review burden for agency
ethics officials. Finally, the feedback OGE received in interagency
consultations, as well as the majority of the comments received in the
public comment period and in the public hearings and meetings held by
OGE in advance of drafting the proposed regulation, strongly support
the trust structure being mandatory for legal expense funds.
Furthermore, in order to address the concerns raised by those
objecting to the trust requirement and to reduce the burden on employee
beneficiaries, OGE intends to issue guidance on, and provide sample
trust clauses that would meet, the requirements of the regulation. In
addition, OGE has provided other means for less wealthy or well-
connected employees to access legal services. For example, the new
Sec. 2635.204(c)(2)(iv) creates a specific gift exception for
assistance offered by pre-
[[Page 33803]]
existing employee organizations, which would permit employees to accept
assistance with legal fees from organizations such as unions. OGE also
notes that the requirements for accepting pro bono services under
subpart J are significantly less burdensome than setting up a trust.
One commenter asked that the prohibitions on the trustee position
be expanded to include prohibited sources (as defined in Sec.
2635.203(d)), employees of lobbyists, all relatives of the beneficiary,
and an employee or agent of the beneficiary or any other person
prohibited by this section. OGE believes that the proposed additions
are overly broad. First, OGE does not believe that a blanket
prohibition on any individual already serving as employee or agent of
the beneficiary (e.g., an employee's personal attorney) is needed to
adequately guard against potential conflicts of interest. OGE further
notes that the proposed term ``relative'' is broad; instead, OGE
specifically prohibited spouses, parents, and children for clarity. In
addition, OGE notes that agency ethics officials emphasized in
listening sessions following the ANPRM that in large agencies, almost
all companies (and correspondingly, their employees) are considered
prohibited sources. Furthermore, the proposed restrictions would
prohibit an attorney working at any law firm where other attorneys
perform lobbying work from serving as a trustee. Adding the proposed
restrictions would greatly limit the pool of people available to serve
as trustees, which could create additional barriers to access for
lower-level employees. Accordingly, OGE is not going to adopt the
proposed restrictions.
One commenter commended OGE's careful consideration of anonymous
whistleblowers and the particular risks they face within the proposed
structure. One organization raised concerns that anonymous
whistleblowers working for intelligence agencies may risk having their
identities revealed if OGE contacts the agency to establish procedures
for handling classified documents. OGE has coordinated with
intelligence agencies and has confirmed that existing policies at these
agencies can be adapted to handle any LEF documents with classified
information. All classified information will remain at the agency.
Moreover, anonymous whistleblower LEF documents likely will not contain
any classified information since the employee's name and position will
not be included. In the unlikely event OGE would need to review a
document with classified information, an OGE employee with a security
clearance will review the document in secure agency spaces, consistent
with the current practice for other ethics documents containing
classified information.
OGE received several comments from individuals objecting to ``self-
reporting'' of legal expense funds. OGE understands the concern, but
notes that because OGE only has the authority to regulate executive
branch employees, it is necessarily the employee beneficiary's
responsibility to properly report a legal expense fund.
OGE received one comment that Sec. 2635.1004(e)(1) is superfluous
and should be deleted in light of Sec. 2635.1004(f) because both
provisions discuss the requirement that an employee beneficiary file
their legal expense trust fund document with their agency. Section
2635.1004(e)(1) outlines the steps employees must take after accepting
contributions to their legal expense fund, which include filing the
legal expense fund trust document with their agency and receiving
approval. Section 2635.1004(f) specifies which employees need to file
with their agency and which need to file with OGE. Because paragraph
(e) identifies which actions an employee must take to accept
contributions and paragraph (f) specifies where the employee must file,
OGE disagrees that Sec. 2635.1004(e)(1) is superfluous and declines to
change the regulation.
One organization proposed mandating that additional documents be
sent to reviewing officials for approval, specifically: the trust
agreement, written procedures for compliance with applicable ethics
requirements, and a certification that the trustee meets the
eligibility requirements, which would include the trustee's name,
business address, employer, and relationship to beneficiary. The
organization further proposed that there be no redactions of the
documents other than fee schedules and sensitive personal information
such as personal addresses, the names of minor children, and account
numbers.
OGE notes that providing the trust agreement to the reviewing
official is already mandated by Sec. 2635.1004(f). Further, Sec.
2635.1004(g) indicates that the reviewing official should review
``information regarding the trustee'' along with the trust document, in
order to ascertain that the trustee meets the requirements of Sec.
2635.1003. Accordingly, OGE does not believe a separate trustee
certification is needed. In addition, OGE is electing not to adopt the
proposal as OGE believes that ``written procedures for compliance with
applicable ethics requirements'' is vague and could cause confusion--
agency ethics officials can advise on compliance with legal expense
fund requirements just as they do with other ethics requirements.
Finally, OGE is adding a note in this section clarifying that only
sensitive personal information such as fee schedules, personal
addresses, and account numbers will be redacted.
Two organizations objected to agency officials serving as the
approval authority for employee legal expense funds on the grounds that
the agency is often a party opponent in federal employment litigation,
which would create an incentive to withhold or delay approval. OGE
understands this concern, and notes that all employees seeking legal
expense funds may appeal agency denials to OGE. To more fully address
this issue, OGE has broadened the existing legal expense fund appeal
process to include an appeal right if the legal expense fund is not
approved within the required 30-day timeline. However, OGE notes that
given the need for conflicts screening, agencies should still be the
initial review authority for most legal expense funds due to their
knowledge of agency-specific conflicts.
In addition, one commenter proposed expanding the list of employees
for whom OGE would conduct a second-level review of legal expense funds
to include agency heads and leaders of certain component entities whose
financial disclosure reports OGE does not review. OGE believes that
uniformity across the executive branch ethics program is appropriate in
this case and defers to the authority in 5 U.S.C. 13103 in identifying
which senior positions require an elevated level of review.
Accordingly, OGE declines to adopt the commenter's proposal.
One commenter noted that the proposed regulation did not clearly
indicate the process for review for a Designated Agency Ethics
Official's (DAEO) legal expense fund or specify the process for
subordinate ethics officials. OGE has amended the regulation to clarify
that OGE would conduct the initial review of a DAEO's legal expense
fund. Legal expense funds of subordinate ethics officials will follow
the same process as other employees and be reviewed by the DAEO.
One organization commented that whistleblowers should have access
to a standardized trust document to use rather than having to seek an
individualized prior approval of their trust. State trust laws vary and
are subject to change. Therefore, OGE cannot create a standardized
trust document that would reliably satisfy all states' trust laws. It
is the responsibility
[[Page 33804]]
of the beneficiary and trustee to ensure the trust complies with
applicable state law. However, OGE will issue guidance that provides
trust clauses that will comply with subpart J.
One organization asked that the legal expense fund documents be
available on OGE's website as ``searchable, sortable, and
downloadable.'' OGE intends to have the records sortable by name of
employee beneficiary, agency, position, and type of document. This is
similar to the search capability for financial disclosure reports,
which are also publicly available on OGE's website. In addition, OGE
anticipates that the number of legal expense trust funds will be
relatively low. Accordingly, anyone seeking information about legal
expense fund donations should be able to quickly locate the information
they need using the search capability available.
One organization requested more specific requirements for donors
and the trustee when screening donations. Specifically, the
organization requested that each donor supply their employer and state
of residence, confirm they meet the eligibility requirements, and
acknowledge that the information the donor submits is subject to 18
U.S.C. 1001. They asked that the trustee consult with the beneficiary
and agency ethics official during the review and that the trustee
interview every donor giving more than $1,000.
Although Sec. 2635.1005 does not specifically address the
information the trustee is required to collect from donors, it does
state the trustee must provide the beneficiary with the information to
complete their quarterly reports and public financial disclosure
statements. As a result, the trustee is required to collect the name
and employer for every donor and if the beneficiary is a public
financial disclosure filer, the donor's city and state of residence. To
create reporting consistency for all beneficiaries, OGE is revising
Sec. 2635.1007(a)(1) to require the reporting of the donor's city and
state of residence. Because the donor information is being provided to
the trust, rather than the government directly, OGE is not requiring an
acknowledgement that 18 U.S.C. 1001 applies. The trustee is a fiduciary
and as a result, OGE believes a trustee's duty of care will require
them to consult with the beneficiary and agency ethics officials, as
necessary, to determine if a donation is permissible. Finally, OGE
believes an interview requirement is too great an administrative and
cost burden to place on the trust as the trustee should be able to
ascertain whether or not the donation is prohibited without
interviewing the donor.
Section 2635.1005: Administration
OGE received no comments regarding this section.
Section 2635.1006: Contributions and Use of Funds
One individual commenter noted that the scope of acceptable donors
to legal expense funds is different from the scope of individuals and
entities that can provide pro bono legal services and suggested both
have the same restrictions. OGE created more specific requirements for
donors of in-kind pro bono services because of the nature of legal
service providers. Many pro bono donors are law firms or legal service
organizations, which are not individuals and would thus be precluded
from donating pro bono legal services if the requirements were
identical. Instead, only solo legal practitioners would be able to
provide pro bono legal services, severely limiting employees' access to
such services. For these reasons, OGE is electing to provide executive
branch employees the opportunity to access pro bono legal services
within the existing limitations of the regulation. These limitations
include, importantly, prohibiting pro bono donations from attorneys or
organizations substantially affected by the performance or
nonperformance of an employee's official duties.
OGE requested comments regarding whether 501(c)(3) and 501(c)(4)
organizations should be permitted to donate to legal expense funds. OGE
received three comments from organizations expressing opposition to
allowing 501(c)(4) organizations to donate. OGE also received comments
from two organizations expressing opposition to allowing 501(c)(3)
organizations to donate, with one allowing for the possibility of
permitting donations with certain restrictions on the type of 501(c)(3)
organizations that can donate.
OGE believes it is appropriate to allow 501(c)(3) organizations to
donate to legal expense funds and has revised the regulation to permit
such donations. 501(c)(3) organizations are tax-exempt charitable
organizations that are restricted from lobbying activities and have
other safeguards built into the requirements of the Internal Revenue
Code. OGE is further requiring that the donating 501(c)(3) organization
be established for two years before the donation in order to prevent
donations from entities created specifically to circumvent these
regulations. 501(c)(4) organizations may participate in lobbying
activities, and as a result, OGE believes these organizations pose a
greater risk of impartiality concerns. Accordingly, OGE is electing not
to allow 501(c)(4) organizations to donate. In addition, OGE notes that
an employee beneficiary will have a mandatory recusal from particular
matters involving specific parties for any 501(c)(3) organization
making a donation (see Sec. 2635.1002) to protect against impartiality
concerns.
OGE received many comments arguing for a lower cap on donations,
including comments suggesting the cap match the campaign finance
donation limit. One organization commented that there should be no cap
on donations. The $10,000 proposed donation cap in the regulation is
consistent with the donation cap for U.S. Senate legal expense funds.
The cap in the regulation also balances the high cost of legal services
with preventing employees from relying on a single source or small
number of sources to fund the employee's legal expenses.
OGE received several comments from individuals asking OGE to
prohibit donations from foreign governments and corporations. The
regulation prohibits foreign governments from donating, and OGE has, in
addition, amended the regulation to prohibit foreign nationals from
donating to legal expense funds, serving as trustees, and providing pro
bono legal services. The regulation also prohibits donations from any
entities that are not registered 501(c)(3) organizations or political
parties. For the purposes of this regulation, ``political parties''
include the distinct legal entities within national parties and party
committees.
Section 2635.1007: Reporting Requirements
Two organizations commented that they oppose the requirement to
disclose the terms of representation and funding sources for most
employees in quarterly reports, stating that the information is
privileged and confidential, that it would require employees to report
confidential billing statements with attorney work product, and that
the proposed rule, as written, improperly invades the privileged
attorney-client relationship. One of the two organizations argued in
the alternative that the vagueness of the reporting requirements would
``trick'' unwary clients into disclosing privileged and confidential
information. This organization further stated that the reporting would
be onerous and strategically disadvantage federal employees who need
legal representation. In contrast, a separate organization strongly
supported the quarterly reporting model as drafted.
[[Page 33805]]
OGE also received many comments from individuals supporting the idea of
transparency generally and the specific public reporting requirements
in the proposed regulation. Several individual commenters requested
additional disclosures including: disclosing all donations, disclosing
the relationship between the donor and beneficiary, and disclosing
whether the donor does business with the beneficiary's agency. OGE
weighed this strong support for transparency when considering any
possible changes in response to commenters seeking less transparency.
OGE believes that the required quarterly reporting is necessary for
transparency and does not impede on attorney-client privilege or unduly
discourage representation of federal employees. The regulation requires
that the beneficiary report distributions of $250 or more from the
fund. Section 2635.1007 requires that the employee beneficiary disclose
the payee, date of distribution, amount, and ``purpose'' of the
distribution. The required purpose can be as broad as ``legal
services'' and the employee beneficiary is in no way compelled to, and
in fact should not, report confidential attorney-client information.
OGE notes specifically that the beneficiary is not required to report
the terms of the representation or the billing rates of the staff
involved. Moreover, OGE intends to provide more specific guidance
regarding quarterly reporting requirements. Although OGE acknowledges
that there may be some strategic disadvantages to any disclosure
requirements, OGE is balancing that concern with the need for
transparency, which most commenters emphasized was crucial to this
process.
OGE also is balancing the privacy interests of the donors and
beneficiaries with the need for transparency. OGE believes the
additional information requested by some individual commenters, such as
the relationship between the beneficiary and donor, encroaches too much
on the privacy of the donors and the beneficiary. In addition, the
information required aligns with the disclosure requirements for U.S.
House of Representatives legal expense funds.
One of the organizations also commented that the proposed reporting
system would deter attorneys from representing federal employees. As
noted above, OGE believes that the reporting requirements are very
general and not unduly onerous.
Two organizations commented that placing the quarterly reporting
information into a searchable, sortable database makes that information
available to attorneys of party opponents, and stated that the
information is privileged. OGE reiterates that no privileged
information is required to be disclosed under Sec. 2635.1007, and
information such as whether the client is on a flat or fixed rate or
the numbers of hours worked is not required by the form. Any
hypothetical strategic disadvantage to the employee beneficiary is
outweighed by the employee beneficiary being able to access funds for
legal services.
One organization requested that the trustee disclose violations of
the regulations (which OGE takes to mean impermissible donors or
expense payments) and the corrective action taken, or in the
alternative, declare that there have been no known violations. OGE does
not have the statutory authority to require reporting by the trustee;
all required reporting is from the employee beneficiary. In addition,
the regulation contemplates the identification and return of
impermissible donations as part of the proper functioning of the
regulation, not as a per se violation. The beneficiary reports all
donations received of $250 or more and all distributions of $250 or
more on quarterly reports. These reports will be reviewed by agency
ethics officials, and in some cases OGE, to ensure compliance with the
regulation. It is possible that a trustee or beneficiary may not
promptly identify an impermissible donation: this is the reason for
agency review. In those cases, the agency ethics official will direct
the employee to return the donation. OGE believes agency review of the
quarterly reports and the fiduciary duty owed to the beneficiary are
sufficient incentives for the trustee to act with care in carrying out
their responsibilities.
One organization commented that they were concerned that the
information required in quarterly reports about donors could provide
clues as to the identity of an anonymous whistleblower and asked that
anonymous whistleblowers be permitted to file reports a year after the
normal deadline. OGE understands this concern, which is why reports
filed by anonymous whistleblowers are not publicly posted like other
reports. However, OGE believes the quarterly reporting requirements are
important to ensure compliance with the regulation and to provide the
information necessary for the employee and OGE to manage any required
recusals. OGE believes the regulation strikes the proper balance
between the risk to the whistleblower and OGE's required oversight of
the ethics program. As a result, the regulation's quarterly reporting
requirements apply to all beneficiaries of legal expense funds.
Section 2635.1008: Termination of a Legal Expense Fund
OGE requested comments regarding how and when the 501(c)(3)
organization to which excess funds are donated should be designated.
OGE received two comments from organizations supporting the idea that
the trustee designate the organization, with one in favor of
designating the organization at the time of termination of the trust.
One individual commenter asked that the designation of the organization
be at the time of formation to provide more information to donors to
the fund. The commenter also objected to not returning the unspent
donations to the donors. In addition, one organizational commenter
requested that the 501(c)(3) organization not have ties to the trustee.
OGE has revised Sec. 2635.1008 to exclude 501(c)(3) organizations
that have ties to the trustee, but is not changing the time of
designation. The regulation's timing in designating the 501(c)(3)
organization is similar to that for legal expense funds established
pursuant to the U.S. House of Representatives legal expense fund
regulations, and the small number of comments weigh in favor of not
changing the time of designation. The individual commenter was dubious
of the difficulty in returning unspent funds to individual donors,
given that the regulation requires the return of impermissible
donations. In practice, however, it is challenging to return unspent
donations to individual donors at the end of the life of a fund because
the trustee would have to apportion the remaining funds among all of
the donors to the fund, which could result in returning insignificant
amounts to many individual donors. OGE believes a donation of the
remaining amount to an approved 501(c)(3) organization reduces the
administrative burden on the trust and does not create additional
conflicts issues. However, OGE has amended the regulation to allow the
return of unspent funds to individual donors if practicable.
OGE received one comment requesting mandatory termination of legal
expense funds to prevent beneficiaries from having legal expense funds
that continue to spend funds after the legal matter has ended, i.e.,
``zombie funds.'' OGE has revised the rule and adopted a mandatory
termination within 90 days of conclusion of the legal matter or within
90 days of the last expenditure made in relation to the
[[Page 33806]]
legal matter for which it was created, whichever is later.
Section Sec. 2635.1009: Pro Bono Legal Services
OGE received three comments from organizations regarding the
restrictions on individuals and entities that provide pro bono legal
services. One organization supported this section of the proposed
regulation as drafted, stating that it contained adequate protections
against conflicts of interest. One organization suggested that OGE
adopt the definition of prohibited source found in Sec. 2635.203(d)
and disallow all prohibited sources from providing pro bono legal
services. One organization suggested that OGE revise the language of
the rule to more clearly state that any individuals providing pro bono
legal services may not be substantially affected by the performance or
nonperformance of an employee's official duties.
OGE declines to adopt the suggestion to bar the acceptance of pro
bono services from prohibited sources as defined in Sec. 2635.203(d).
In preparing to draft the proposed rule, OGE solicited input from
agency ethics officials. Several agency ethics officials from large
agencies told OGE that if the traditional ``prohibited source''
definition was applied to pro bono services, the employees at their
agencies would likely never be able to accept pro bono assistance with
legal expenses because of the breadth of the agency portfolio.
OGE also notes that barring acceptance of pro bono services from
firms registered as lobbyists and foreign agents would make it very
difficult for employees to retain law firm services at all; this is
particularly true for employees who live and work in the Washington, DC
Metro Area. Accordingly, OGE has elected to permit employees to accept
pro bono services from individual attorneys who are not lobbyists,
foreign nationals, or foreign agents, and from organizations (law firms
and other legal entities) that do not have interests that may be
substantially affected by the performance or nonperformance of an
employee's official duties. OGE recognizes the concerns related to
lobbyists and registered foreign agents providing gifts, which is why
individual attorneys providing pro bono services cannot be lobbyists,
foreign nationals, or foreign agents.
In addition, OGE has revised the regulation to more clearly address
the two-step pro bono donor analysis. First, the individual attorney
providing legal services cannot be a lobbyist, foreign agent, or
foreign national, nor have interests substantially affected by the
performance or nonperformance of the employee's official duties.
Second, the organization or entity employing the attorney (e.g., a law
firm, legal services organization, or 501(c)(3) hiring outside counsel)
may not have interests that may be substantially affected by the
performance or nonperformance of the employee's official duties. OGE
believes the regulation as written strikes the proper balance between
conflicts of interest concerns and allowing access to pro bono services
in practice for all federal employees.
OGE solicited comments regarding whether 501(c)(3) and 501(c)(4)
organizations should be permitted to pay for legal services for an
executive branch employee. OGE received a comment from 6,905
individuals that nonprofit charities should be on equal footing with
law firms in the ability to provide legal services. OGE also received
comments from three organizations that supported the idea that
501(c)(3) organizations should be able to pay for outside counsel to
provide legal services to executive branch employees, with some
limitations. The limitations proposed include: (1) that the
organization not have conflicting interests; (2) that the organization
be in operation for at least two or three years; and (3) that the
organization's focus be on government integrity, whistleblower
protections, federal employment law, or fraud, waste, and abuse in the
government. OGE received one comment from an organization objecting to
the idea that both 501(c)(3) organizations and 501(c)(4) organizations
could be able to pay for outside counsel to provide legal services. OGE
received two comments from organizations objecting to, and no comments
in support of, allowing 501(c)(4) organizations to provide pro bono
legal services or pay for legal services for executive branch
employees.
OGE notes that Sec. 2635.1009(a)(2) of the proposed regulation had
allowed both law firms and 501(c)(3) organizations to provide in kind
pro bono legal services to an employee, so long as the entity providing
services did not ``have interests that may be substantially affected by
the performance or nonperformance of an employee's official duties.''
This provision allowed a 501(c)(3) organization to provide legal
services using the organization's own employees, but it did not permit
any entity to hire an outside lawyer or law firm to provide those
services.
Following the review of the comments, OGE also believes it is
appropriate to allow 501(c)(3) organizations to pay an outside lawyer
or law firm to provide an employee legal services. As discussed above,
501(c)(3)s are tax-exempt charitable organizations that are restricted
from lobbying activities and have other safeguards due to the
requirements of the Internal Revenue Code. Because 501(c)(4)
organizations do not have similar safeguards in place and do not have
the same restrictions on lobbying activity, OGE is declining to allow
501(c)(4) organizations to pay an outside lawyer or law firm to provide
an employee legal services.
OGE has revised the regulation to include a provision permitting
501(c)(3) organizations to hire outside counsel to represent executive
branch employees for legal matters arising in connection with the
employee's past or current official position, the employee's prior
position on a campaign, or the employee's prior position on a
Presidential Transition Team. Any 501(c)(3) organization seeking to
hire outside counsel will be required to have been established for two
years before paying for an employee's legal services to protect against
the creation of an entity in order to circumvent these regulations. The
501(c)(3) organization will also need to meet the requirements of Sec.
2635.1009(a).
There is heightened concern about impartiality in pro bono legal
arrangements and in any circumstance when a third party is paying for
an employee's legal fees. As a result, the employee will have a
mandatory recusal from particular matters involving specific parties
involving the attorney(s) and legal services organization representing
the employee in a legal matter. The employee will also have a mandatory
recusal from particular matters involving specific parties involving
any 501(c)(3) organization paying for the employee's legal fees during
the representation and for two years after the representation has
concluded.
OGE received comments from two organizations concerned that seeking
approval from the agency for receipt of pro bono service when the
agency is the opposing party in the legal matter would deter some
employees from seeking pro bono legal services. The ethics system in
the executive branch is decentralized; thus, the agencies are in the
best position to know which individuals, 501(c)(3) organizations, and
law firms have business before the agency and could create a conflict
of interest. As a result, the review process
[[Page 33807]]
rests with agencies. To address the concern expressed by the
commenters, however, OGE has revised the regulation to permit employees
engaged in legal matters when the agency is the opposing party to
appeal to OGE when an agency determines that a pro bono service
provider is prohibited, or when an agency fails to make such a
determination within 30 days. OGE believes this change strikes a
balance between ensuring prohibited donors are not providing legal
services to employees while ensuring every employee entitled to
assistance with legal services can access those services.
OGE received a comment from an organization that is concerned that
legal services providers could be paid by third parties for legal
services and the employee and/or the legal services provider would then
characterize those services as pro bono. The commenter requested an
amendment to the regulation requiring a certification by the legal
services provider and the employee that no third party is paying for
the legal services. In response to the commenter's concern, OGE is
adding a certification to the quarterly report where the employee will
attest that the information is true, complete, and correct to the best
of their knowledge. In addition, any employee who files an OGE Form
278e or 450 financial disclosure statement must disclose the receipt of
pro bono services or legal services paid for by a non-relative third
party as a gift on their annual financial disclosure report, which the
employee must similarly certify is true, complete, and correct to the
best of their knowledge. Both disclosure statements are subject to the
civil and criminal penalties for either failure to disclose or false
disclosure.
B. Comments on Subpart B of the Standards
Two organizations requested clarification on whether contingency
fees are provided for less than ``market value'' as that term is
defined in Sec. 2635.203(c). OGE considers contingency fees to be a
regular market arrangement, and does not consider a contingency fee
arrangement on its face to be less than the cost a member of the
general public would reasonably expect to incur. Accordingly,
contingency fee arrangements are not pro bono legal services as defined
in Sec. 2635.1003.
OGE received no comments regarding Sec. 2635.204(n): Exception for
Legal Expense Funds and Pro Bono Legal Services and Sec. 2635.204(c):
Discounts and Similar Benefits in subpart B.
OGE is implementing a new exception at 5 CFR 2635.204(c)(2)(iv) to
clarify that employees may properly accept opportunities and benefits
offered by a previously established employee organization, when
eligibility is based on the employee's status as an agency employee. As
discussed in the preamble to the proposed rule (see 87 FR 23773), the
proposed exception is limited to ``established'' employee
organizations, such as employee welfare groups for Federal employees,
because the purpose of this exception is to allow employees to accept
opportunities and benefits from pre-existing employee organizations
with a general mission of providing assistance to agency employees,
rather than from organizations established as a response to a specific
investigation or established to help a specific employee. As the
preamble to the proposed rule clarifies, the word ``established'' does
not mean an employee organization must be established before this
regulation goes into effect; rather, it means that the organization
should have been established before the need for assistance arises--in
the case of an LEF, before a legal matter arises.
C. Regulatory Amendments to Confidential Financial Disclosure Reporting
Requirements
OGE received no comments regarding Sec. 2634.907: Report contents.
III. Matters of Regulatory Procedure
Regulatory Flexibility Act
As Director of the Office of Government Ethics, I certify under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) that this final rule
will not have a significant economic impact on a substantial number of
small entities because it primarily affects current Federal executive
branch employees.
Paperwork Reduction Act
The Paperwork Reduction Act (44 U.S.C. chapter 35) applies because
this regulation creates information collection requirements that
require approval of the Office of Management and Budget. The
information collection requirements imposed by the proposed regulation
are directed at beneficiaries of legal expense funds, who are current
executive branch employees. Although the requirements are directed at
employee beneficiaries, OGE anticipates that the legal expense fund
trustees will prepare most or all of the fund documentation and
reporting.
In fulfilling the regulatory requirements, employee beneficiaries
must first submit a trust document for approval by their employing
agency, and in some cases by OGE. Employee beneficiaries must also
submit quarterly and termination reports regarding the funds collected
and disbursed by the legal expense fund. The employee beneficiaries
will in turn collect information from (1) donors who contribute to the
legal expense fund for the payment of legal expenses and (2) payees who
receive payments distributed from the legal expense fund. Together,
this information collection is titled ``OGE Legal Expense Fund
Information Collection.''
OGE plans to seek Paperwork Reduction Act approval of this new
information collection. The purposes of the OGE Legal Expense Fund
Information Collection include, but are not limited to, obtaining
information relevant to a conflict-of-interest determination and
disclosing on the OGE website information submitted pursuant to 5 CFR
part 2635, subpart J. The authority for this information collection is
addressed in the SUPPLEMENTARY INFORMATION section.
OGE estimates that there will be approximately three new legal
expense funds filed each year. It is anticipated that there may be an
average of five legal expense fund trusts in existence each year. Each
trust is anticipated to have approximately 20 donors, whose reporting
requirements are tied to the frequency with which they donate, and
approximately two payees, who will submit information each time they
receive a distribution.
The following table estimates the total annual burden resulting
from the OGE Legal Expense Fund Information Collection will be
approximately 129.2 hours.
----------------------------------------------------------------------------------------------------------------
Number of
Instrument Time per response annual Total burden
responses (hours)
----------------------------------------------------------------------------------------------------------------
Trust Document.............................. 20 hours.......................... 3 60
Quarterly and Termination Reports 2 hours........................... 20 60
(beneficiary burden).
Quarterly and Termination Reports (donor and 5 minutes......................... 110 9.2
payee burden).
-------------------------------
[[Page 33808]]
Total................................... .................................. .............. 129.2
----------------------------------------------------------------------------------------------------------------
These estimates are based in part on OGE's knowledge of several
legal expense funds that have been established for Executive branch
employees, as well as OGE's consultation with the U.S. House of
Representatives and the U.S. Senate regarding the legal expense funds
that they oversee.
Shortly after publication of this rule, OGE plans to submit this
new information collection to the Office of Management and Budget (OMB)
for approval under the Paperwork Reduction Act. OMB is required to make
a decision concerning the collection of information requirements
contained in this rule between 30 and 60 days after publication of this
document in the Federal Register. Therefore, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication. Public comments can be submitted on OMB's website:
<a href="http://Reginfo.gov">Reginfo.gov</a>.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
chapter 25, subchapter II), this final rule will not significantly or
uniquely affect small businesses and will not result in increased
expenditures by State, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more (as adjusted for
inflation) in any one year.
Executive Order 13563 and Executive Order 12866
Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select the regulatory approaches that
maximize net benefits (including economic, environmental, public health
and safety effects, distributive impacts, and equity). Executive Order
13563 emphasizes the importance of quantifying both costs and benefits,
of reducing costs, of harmonizing rules, and of promoting flexibility.
This final rule has been designated as a ``significant regulatory
action'' although not economically significant, under section 3(f) of
Executive Order 12866. Accordingly, this rule has been reviewed by the
Office of Management and Budget.
Currently, executive branch employees may accept gifts to pay for
legal expenses from others directly and can also establish funds to
accept donations for such expenses, as long as the employee remains in
compliance with the gift restrictions in subparts B and C of the
Standards of Conduct and the criminal conflict of interest statutes.
See, e.g., OGE Legal Advisory LA-18-11 (Sept. 12, 2018); OGE Legal
Advisory LA-17-10 (Sept. 28, 2017). In other words, there are currently
costs for employees who establish an LEF in order to ensure compliance
with ethics rules even in the absence of OGE's new framework in subpart
J, but compliance can be difficult and confusing as the current rules
do not address these types of gifts specifically. OGE's role is
currently limited to providing a legal expense fund trust template or
to providing technical assistance to help ensure that executive branch
employees who may receive distributions from an LEF will be in
compliance with existing ethics laws and rules.
Based on OGE's current experience under the status quo, it is
estimated that approximately five executive branch employees may seek
to establish or maintain an LEF annually. The new framework will
consist of the following activities: establishment of the LEF trust;
submission of trust documentation for agency review and approval;
review and approval by OGE (when applicable); LEF trustee soliciting
and accepting donations; LEF trustee screening donations to ensure the
donor is permissible; LEF trustee overseeing distributions from the
trust for the employee's legal expenses; preparing quarterly reports of
contributions to and distributions from the LEF; submission of
quarterly reports for agency review; review by OGE (when applicable);
preparation of trust termination reports and/or employment termination
reports; submission of those reports for agency review and OGE review
(when applicable); and communications regarding all of the above. OGE
estimates that the annual time burden for all of the above is 100
hours. Using an estimated rate $340 per hour for the services of a
professional trust administrator or private representative, the
estimated annual cost burden is $34,000. See Clio, Legal Trends Report
65 (2021), <a href="https://www.clio.com/resources/legal-trends/2021-report/read-online/">https://www.clio.com/resources/legal-trends/2021-report/read-online/</a> (calculating an average hourly rate of $332 for trust
lawyers nationally). However, OGE estimates that the annual time burden
under the status quo, if an employee establishes a legal expense fund
that needs to comply with existing ethics rules, is 75 hours with an
annual cost burden of $25,500. Thus, the net increase from the status
quo is approximately $8,500 per fund. The estimate of 75 hours is
based, in part, on the estimated time burden for OGE's qualified trust
program. See 84 FR 67743. That number was reduced because the status
quo does not require review and approval of trusts or submission of
reports to agencies and OGE. Under the status quo, a significant time
burden exists because the lack of a detailed framework requires
additional research by employee representatives, consultation with
agency ethics officials and OGE, and a more detailed review of each
legal expense fund donor in the absence of an enumerated list of
permissible donors. The additional 25-hour estimate is based on the
specific submissions required by 5 CFR part 2635, subpart J.
Specifically, submission of documents establishing an LEF trust,
quarterly reports, and termination reports; review by agencies and OGE
of those submissions; and corresponding communications will increase
the cost burden in comparison to the status quo. The burden on legal
expense fund donors specifically is unchanged because they would need
to provide the same level of information under the status quo.
The benefits from implementing this new regulatory structure are
significant. Employees' acceptance of payments for legal expenses
relating to their official duties has triggered concern from outside
groups, Congress, and the media regarding appearance of corruption,
corruption issues, and a desire for transparency. Creating this
regulation will provide a framework for screening for conflicts of
interest and transparency, which will serve to protect both the agency
and the employee. Further, the regulation will provide clarity to
executive branch employees by articulating the process for establishing
an LEF and the requirements for maintaining one, including: donation
caps, the process for review and approval of LEF trust documents, the
definition of prohibited donors, and the submission of quarterly,
publicly available reports. As a result of
[[Page 33809]]
these requirements, as well as the increased public reporting
requirements, the public will have increased confidence in the
decision-making of executive branch employees who accept gifts of legal
expenses consistent with the new proposed subpart J.
Executive Order 12988
As Director of the Office of Government Ethics, I have reviewed
this final rule in light of section 3 of Executive Order 12988, Civil
Justice Reform, and certify that it meets the applicable standards
provided therein.
Executive Order 13175
The Office of Government Ethics has evaluated this final rule under
the criteria set forth in Executive Order 13175 and determined that
tribal consultation is not required as this proposed rule has no
substantial direct effect on one or more Indian tribes, on the
relationship between the Federal Government and Indian tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian tribes.
List of Subjects
5 CFR Part 2634
Certificates of divestiture, Conflict of interests, Financial
disclosure, Government employees, Penalties, Privacy, Reporting and
recordkeeping requirements, Trusts and trustees.
5 CFR Part 2635
Conflict of interests, Executive branch standards of ethical
conduct, Government employees.
Approved: May 10, 2023.
Emory Rounds,
Director, U.S. Office of Government Ethics.
For the reasons set forth in the preamble, the U.S. Office of
Government Ethics amends 5 CFR parts 2634 and 2635 as follows:
PART 2634--EXECUTIVE BRANCH FINANCIAL DISCLOSURE, QUALIFIED TRUSTS,
AND CERTIFICATES OF DIVESTITURE
0
1. The authority citation for part 2634 is revised to read as follows:
Authority: 5 U.S.C. 13101 et. seq.; 26 U.S.C. 1043; Pub. L.
101-410, 104 Stat. 890, 28 U.S.C. 2461 note, as amended by Sec.
31001, Pub. L. 104-134, 110 Stat. 1321 and Sec. 701, Pub. L. 114-74;
Pub. L. 112-105, 126 Stat. 291; E.O. 12674, 54 FR 15159, 3 CFR, 1989
Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990
Comp., p. 306.
0
2. Amend Sec. 2634.907 by:
0
a. Revising paragraph (g)(5); and
0
b. Designating the example following paragraph (g)(5) as Example 1 to
paragraph (g).
The revision reads as follows:
Sec. 2634.907 Report contents.
* * * * *
(g) * * *
(5) Exceptions. Reports need not contain any information about:
(i) Gifts and travel reimbursements received from relatives (see
Sec. 2634.105(o)).
(ii) Gifts and travel reimbursements received during a period in
which the filer was not an officer or employee of the Federal
Government.
(iii) Any food, lodging, or entertainment received as ``personal
hospitality of any individual,'' as defined in Sec. 2634.105(k).
(iv) Any payments for legal expenses from a legal expense fund or
the provision of pro bono legal services, as defined in subpart J of
part 2635 of this chapter, or any payments for legal expenses or the
provision of pro bono legal services that otherwise qualify for a gift
exclusion or gift exception in subpart B of part 2635 of this chapter,
if the confidential filer is an anonymous whistleblower as defined by
Sec. 2635.1003 of this chapter.
(v) Any exclusions specified in the definitions of ``gift'' and
``reimbursement'' at Sec. 2634.105(h) and (n).
* * * * *
PART 2635--STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES OF THE
EXECUTIVE BRANCH
0
3. The authority citation for part 2635 is revised to read as follows:
Authority: 5 U.S.C. 7301, 7351, 7353; 5 U.S.C. 13101 et. seq.;
E.O. 12674, 54 FR 15159, 3 CFR, 1989 Comp., p. 215, as modified by
E.O. 12731, 55 FR 42547, 3 CFR, 1990 Comp., p. 306.
0
4. Amend Sec. 2635.203 by adding paragraphs (h) and (i) to read as
follows:
Sec. 2635.203 Definitions.
* * * * *
(h) Legal expense fund has the meaning set forth in Sec.
2635.1003.
(i) Pro bono legal services has the meaning set forth in Sec.
2635.1003.
0
5. Amend Sec. 2635.204 by:
0
a. Removing the word ``or'' at the end of paragraph (c)(2)(ii);
0
b. Removing the period at the end of paragraph (c)(2)(iii) and adding
``; or'' in its place; and
0
c. Adding paragraph (c)(2)(iv), Example 4 to paragraph (c)(2), and
paragraph (n).
The additions read as follows:
Sec. 2635.204 Exceptions to the prohibition for acceptance of certain
gifts.
* * * * *
(c) * * *
(2) * * *
(iv) Offered to employees by an established employee organization,
such as an association composed of Federal employees or a nonprofit
employee welfare organization, because of the employees' Government
employment, so long as the employee is part of the class of individuals
eligible for assistance from the employee organization as set forth in
the organization's governing documents.
* * * * *
Example 4 to paragraph (c)(2): A nonprofit military relief society
provides access to financial counseling services, loans, and grants to
all sailors and Marines. A service member may accept financial benefits
from the relief society, including to cover legal expenses, because the
benefits are offered by an employee organization that was established
before the legal matter arose, and because the benefits are being
offered because of the employees' Government employment, as set forth
in the relief society's governing documents.
* * * * *
(n) Legal expense funds and pro bono legal services. An employee
who seeks legal representation for a matter arising in connection with
the employee's past or current official position, the employee's prior
position on a campaign of a candidate for President or Vice President,
or the employee's prior position on a Presidential Transition Team may
accept:
(1) Payments for legal expenses paid out of a legal expense fund
that is established and operated in accordance with subpart J of this
part; and
(2) Pro bono legal services provided in accordance with subpart J
of this part.
0
6. Add subpart J to read as follows:
Subpart J--Legal Expense Funds
Sec.
2635.1001 Overview.
2635.1002 Applicability and related considerations.
2635.1003 Definitions.
2635.1004 Establishment.
2635.1005 Administration.
2635.1006 Contributions and use of funds.
2635.1007 Reporting requirements.
2635.1008 Termination of a legal expense fund.
2635.1009 Pro bono legal services.
Sec. 2635.1001 Overview.
This subpart contains standards for an employee's acceptance of
payments for
[[Page 33810]]
legal expenses through a legal expense fund and an employee's
acceptance of pro bono legal services. Legal expenses covered by this
subpart are those for a matter arising in connection with the
employee's past or current official position, the employee's prior
position on a campaign of a candidate for President or Vice President,
or the employee's prior position on a Presidential Transition Team.
Sec. 2635.1002 Applicability and related considerations.
(a) Applicability. This subpart applies to an employee who seeks to
accept payments for legal expenses from a legal expense fund or the
provision of pro bono legal services. The legal expenses or the
provision of pro bono legal services must be for a matter arising in
connection with the employee's past or current official position, the
employee's prior position on a campaign of a candidate for President or
Vice President, or the employee's prior position on a Presidential
Transition Team.
(b) Not covered by this subpart. The following types of payments
for legal expenses or pro bono legal services are not covered by this
subpart:
(1) Personal matters. Payments for legal expenses or the provision
of pro bono legal services related to matters that do not arise in
connection with the employee's past or current official position, the
employee's prior position on a campaign of a candidate for President or
Vice President, or the employee's prior position on a Presidential
Transition Team, such as a matter that is primarily personal in nature,
are not covered by this subpart. Personal matters include, but are not
limited to, tax planning, personal injury litigation, protection of
property rights, family law matters, and estate planning or probate
matters.
Example 1 to paragraph (b)(1): A Department of Homeland Security
employee wants to set up a legal expense fund in connection with the
employee's divorce and custody proceeding. This is a personal matter
and the employee may not establish a legal expense fund under this
subpart, but may use other gift exceptions and exclusions in accordance
with subparts B and C of this part as appropriate.
(2) Gifts acceptable according to a gift exclusion or exception.
Payments for legal expenses or the provision of pro bono legal services
that otherwise qualify for a gift exclusion or exception other than
Sec. 2635.204(n) are not covered by this subpart.
Example 1 to paragraph (b)(2): A Central Intelligence Agency
employee is facing administrative disciplinary action due to an issue
with the employee's security clearance and would like to seek financial
assistance to pay for an attorney. Even though this matter arose in
connection with their official position, if the employee's parents
offer to cover the legal expenses, that donation is not subject to this
subpart, as it would be subject to the gift exception at Sec.
2635.204(b).
Note 1 to paragraph (b): Acceptance of legal expense payments or
pro bono legal services not covered by this subpart must be analyzed
under subparts B and C of this part.
(c) Related considerations--(1) Gifts between employees. Acceptance
of legal expense payments or the provision of pro bono legal services
from another employee must be analyzed under 18 U.S.C. 205 and subpart
C of this part.
(2) Impartiality. (i) An employee beneficiary may not knowingly
participate in a particular matter involving specific parties,
consistent with the periods of disqualification detailed in paragraph
(c)(2)(ii) of this section, if any person described below is a party or
represents a party:
(A) The trustee;
(B) An individual, entity, or organization donating pro bono legal
services pursuant to Sec. 2635.1009 (pro bono legal services
provider); or
(C) An individual or entity that made a donation of $250 or more in
a calendar year to the legal expense fund.
(ii) The employee beneficiary's period of disqualification from
particular matters involving specific parties involving the trustee
runs from the assumption of the trustee position until two years after
the trustee's resignation, if the trustee resigns, or two years after
the termination of the trust. The employee's period of disqualification
from particular matters involving specific parties involving each pro
bono legal services provider runs from the commencement of pro bono
legal services until two years after the last date pro bono services
were provided. The period of disqualification for each donor begins to
run on the date the most recent legal expense fund donation is received
from that donor until two years after the donation.
Example 1 to paragraph (c)(2): A donor contributed to a Social
Security Administration (SSA) employee's legal expense fund. Three
months after this contribution was made, the donor submitted a
disability claim. The employee may not participate in evaluating the
disability claim because the claim falls within the two-year mandatory
recusal period.
(3) Misuse of position. Legal expense fund payments must be
solicited and accepted consistent with the provisions in subpart G of
this part relating to the use of public office for private gain, use of
nonpublic information, use of Government property, and use of
Government time. The mere reference to the employee's official position
in a solicitation would generally not violate subpart G of this part.
Example 1 to paragraph (c)(3): A Transportation Security
Administration (TSA) employee retains legal counsel due to an
investigation into inappropriate behavior in their department, and the
employee establishes a legal expense fund in accordance with this
subpart. Neither the employee nor the legal expense fund's trustee may
use the TSA agency seal in materials or otherwise imply the Government
endorses the legal expense fund, or use nonpublic details of the
investigation to solicit contributions to the legal expense fund.
Agency seals frequently are protected by law or require licensing for
use. Further, the employee may not task subordinates with any work
relating to administration of the legal expense fund. However, the
employee may note in a solicitation that they are an employee of TSA,
and that the matter arose in the course of their official duties.
(4) Financial disclosure. In addition to the legal expense fund
reporting requirements outlined in Sec. 2635.1007, an employee
beneficiary who is a public or confidential filer, other than a
confidential filer who is an anonymous whistleblower, under part 2634
of this chapter must report gifts of legal expense payments accepted
from sources other than the United States Government, including gifts
of pro bono services, on the employee's financial disclosure report,
subject to applicable thresholds and exclusions.
Sec. 2635.1003 Definitions.
For purposes of this subpart:
Anonymous whistleblower means an employee who makes or intends to
make a disclosure or report, or who engages in an activity protected
under 5 U.S.C. 2302(b)(8), 5 U.S.C. 2302(b)(9), 5 U.S.C. 416, 50 U.S.C.
3517, 50 U.S.C. 3033, or 28 CFR 27.1, and who seeks to remain
anonymous.
Arising in connection with the employee's past or current official
position means the employee's involvement in the legal matter would not
have arisen had the employee not held the status, authority, or duties
associated with the employee's past or current Federal position.
[[Page 33811]]
Example 1 to the definition of ``arising in connection with the
employee's past or current official position'': A Department of
Transportation employee is being investigated by the Inspector General
for potential misuse of Government resources while on official travel.
The Internal Revenue Service (IRS) is separately investigating the
employee for misreporting household income on the employee's personal
taxes. The employee may use this subpart to establish a legal expense
fund concerning the Inspector General investigation because the legal
matter arose in connection with their official position. However, this
subpart would not apply to the unrelated IRS investigation because that
legal matter did not arise in connection with the employee's official
position.
Example 2 to the definition of ``arising in connection with the
employee's past or current official position'': A junior employee at
the Environmental Protection Agency is challenging their proposed
termination due to misuse of Government property. All of the employee's
alleged misconduct occurred outside official duty hours. Because the
employee would not be subject to the Standards of Conduct had the
employee not held their official position, the employee may establish a
legal expense fund in accordance with this subpart.
Arising in connection with the employee's prior position on a
campaign means the employee's involvement in the legal matter would not
have arisen had the employee not held the status, authority, or duties
associated with the employee's prior position on a campaign of a
candidate for President or Vice President.
Arising in connection with the employee's prior position on a
Presidential Transition Team means the employee's involvement in the
legal matter would not have arisen had the employee not held the
status, authority, or duties associated with the employee's prior
position as a member of the staff of a Presidential Transition Team.
Employee beneficiary means an employee as defined by Sec.
2635.102(h) for whose benefit a legal expense fund is established under
this subpart.
Legal expense fund means a fund established to receive
contributions and to make distributions of legal expense payments.
Legal expense payment or payment for legal expenses means anything
of value received by an employee under circumstances that make it clear
that the payment is intended to defray costs associated with
representation in a legal, congressional, or administrative proceeding.
Pro bono legal services means legal services provided without
charge or for less than market value as defined in Sec. 2635.203(c) to
an employee who seeks legal representation for a matter arising in
connection with the employee's past or current official position, the
employee's prior position on a campaign of a candidate for President or
Vice President, or the employee's prior position on a Presidential
Transition Team.
Sec. 2635.1004 Establishment.
(a) Structure. A legal expense fund must be established as a trust
that conforms to the requirements of this part and applicable state
law. To the extent the requirements of this part and applicable state
law are incompatible, the Director of the Office of Government Ethics
may permit such deviations from this part as necessary to ensure
compatibility with applicable state law.
(b) Grantor. The legal expense fund must be established by the
employee beneficiary.
(c) Trustee. A legal expense fund must be administered by a trustee
who is not:
(1) The employee beneficiary;
(2) A spouse, parent, or child of the employee beneficiary;
(3) Any other employee of the Federal executive, legislative, or
judicial branches;
(4) An agent of a foreign government as defined in 5 U.S.C.
7342(a)(2);
(5) A foreign national;
(6) A lobbyist as defined by 2 U.S.C. 1602(10) who is currently
registered pursuant to 2 U.S.C. 1603(a); or
(7) A person who has interests that may be substantially affected
by the performance or nonperformance of the employee beneficiary's
official duties.
(d) Employee beneficiary. (1) Except as provided in paragraph
(d)(2) of this section, a legal expense fund must be established for
the benefit of a single, named employee beneficiary.
(2) A legal expense fund for the benefit of an anonymous
whistleblower may be established without disclosing the identity of the
anonymous whistleblower to anyone other than the trustee so long as the
legal expense fund is created for the purpose of funding expenses in
connection with the whistleblowing activity or the facts that underlie
that activity.
(e) Filing and approval of legal expense fund trust document
required. An employee beneficiary may not solicit or accept
contributions or make distributions through a legal expense fund
before:
(1) Filing the legal expense fund document in accordance with
paragraph (f) of this section; and
(2) Receiving approval for the legal expense fund in accordance
with paragraph (g)(1) or (g)(3) of this section.
(f) Filing of legal expense fund trust document. (1) The employee
beneficiary, or the trustee or representative of the employee
beneficiary, must file the legal expense fund trust document with the
designated agency ethics official at the agency where the employee
beneficiary is employed.
(2) An employee beneficiary who is an anonymous whistleblower may
choose to file a legal expense fund trust document anonymously through
the employee beneficiary's trustee or representative with the Office of
Government Ethics only. The Office of Government Ethics will not
receive reports containing classified material; if needed, an OGE
employee with a security clearance will review any classified documents
in a secure agency space, consistent with the current practice for
other ethics documents containing classified material.
(g) Approval of legal expense fund trust document. (1) Designated
agency ethics official approval. The designated agency ethics official
must determine, based on the submitted trust document and information
regarding the trustee, whether to approve a legal expense fund trust
document filed by an employee beneficiary, other than an anonymous
whistleblower choosing to file with the Office of Government Ethics,
within 30 calendar days of filing.
(i) Standard for approval. The designated agency ethics official
must approve a legal expense fund that is, based on the submitted trust
document and information regarding the trustee, in compliance with this
subpart.
(ii) Transmission of trust documents to the Office of Government
Ethics. Following approval, the signed legal expense fund trust
document must be forwarded to the Office of Government Ethics within
seven calendar days.
(iii) Exception for anonymous whistleblowers. The Office of
Government Ethics will serve as the approving authority for anonymous
whistleblowers who choose to file a legal expense fund trust document
anonymously with the Office of Government Ethics only.
(2) Office of Government Ethics review. Following approval by the
designated agency ethics official, the Office of Government Ethics will
conduct a secondary review of the legal expense fund trust documents of
the employee beneficiaries listed in
[[Page 33812]]
paragraph (g)(2)(ii) of this section within 30 calendar days of
receipt.
(i) Standard for review. The Office of Government Ethics will
review the legal expense fund trust document to determine whether it
conforms to the requirements established by this subpart. If defects
are ascertained, the Office of Government Ethics will bring them to the
attention of the approving agency and the employee beneficiary or the
employee beneficiary's trustee or representative, who will have 30
calendar days to take necessary corrective action.
(ii) Employee beneficiaries requiring secondary Office of
Government Ethics review. The Office of Government Ethics will review
the legal expense fund trust documents of the following employee
beneficiaries:
(A) The Postmaster General;
(B) The Deputy Postmaster General;
(C) The Governors of the Board of Governors of the United States
Postal Service;
(D) Employees of the White House Office and the Office of the Vice
President; and
(E) Officers and employees in offices and positions which require
confirmation by the Senate, other than members of the uniformed
services and Foreign Service Officers below the rank of Ambassador.
(3) Review for designated agency ethics officials. When the
employee beneficiary is a designated agency ethics official, the Office
of Government Ethics will conduct the sole review and approval. The
Office of Government Ethics will review the legal expense fund trust
document to determine whether it conforms to the requirements
established by this subpart.
(4) Right to Appeal. If the approval of a legal expense fund has
been denied, or an employee's legal expense fund request has not been
acted upon within 30 days, the requester may appeal by mail or email to
the Director of the U.S. Office of Government Ethics. Requests sent by
mail should be addressed to the address for the Office of Government
Ethics that can be found at <a href="http://www.oge.gov">www.oge.gov</a>. The envelope containing the
request and the letter itself should both clearly indicate that the
subject is a legal expense fund appeal. Email requests should be sent
to <a href="/cdn-cgi/l/email-protection#2b676e6d6b444c4e054c445d"><span class="__cf_email__" data-cfemail="226e6764624d45470c454d54">[email protected]</span></a> and should indicate in the subject line that the message
contains a legal expense fund appeal. Appeals should be submitted
within 60 days of denial by the designated agency ethics official or 90
days of submission to the designated agency ethics official, in the
case of a request that has not been acted upon. In the case of legal
expense funds for anonymous whistleblowers and designated agency ethics
officials, OGE staff will conduct the initial review, and the Director
will serve as the appeal authority.
(h) Amendments. The trust document may only be amended if the
trustee and employee beneficiary file the amended legal expense fund
trust document in accordance with paragraph (f) of this section and
seek approval in accordance with paragraph (g) of this section.
(i) One legal expense fund. No employee beneficiary may establish
or maintain more than one legal expense fund at any one time. An
employee may not later establish a second legal expense fund for the
same legal matter.
(j) Conforming existing legal expense funds. In order for an
employee beneficiary who has an existing legal expense fund to receive
legal expense payments from the existing legal expense fund, the
employee beneficiary must comply with Sec. Sec. 2635.1005(b),
2635.1006, and 2635.1007 by February 20, 2024.
(k) Public access. Approved legal expense fund trust documents will
be made available by the Office of Government Ethics to the public on
its website within 30 calendar days of receipt. The trust fund
documents will be sortable by employee beneficiary's name, agency, and
position, as well as type of document and document date. Legal expense
fund trust documents filed by anonymous whistleblowers will not be made
available to the public. Legal expense fund trust documents that are
made available to the public will not include any information that
would identify individuals whose names or identities are otherwise
protected from public disclosure by law. Only sensitive personal
information such as fee schedules, personal addresses, and account
numbers will be redacted.
Sec. 2635.1005 Administration.
(a) Trustee's duties and powers. A trustee of a legal expense fund
is responsible for:
(1) Operating the legal expense fund trust consistent with this
part and applicable state law;
(2) Operating as a fiduciary for the employee beneficiary in
relation to the legal expense fund property and the legal expense fund
purpose;
(3) Providing information to the employee beneficiary as necessary
to comply with the Ethics in Government Act, 5 U.S.C. 13104(a)(2), part
2634 of this chapter, and this part; and
(4) Notifying donors and payees whose contributions and
distributions, respectively, are reportable that their names will be
disclosed on the OGE website.
(b) Limitation on role of the employee beneficiary. An employee
beneficiary may not exercise control over the legal expense fund
property.
Sec. 2635.1006 Contributions and use of funds.
(a) Contributions. A legal expense fund may only accept
contributions of payments for legal expenses from permissible donors
listed in paragraph (b) of this section.
(b) Permissible donors. A permissible donor includes:
(1) An individual who is not:
(i) An agent of a foreign government as defined in 5 U.S.C.
7342(a)(2);
(ii) A foreign national;
(iii) A lobbyist as defined by 2 U.S.C. 1602(10) who is currently
registered pursuant to 2 U.S.C. 1603(a);
(iv) Acting on behalf of, or at the direction of, another
individual or entity in making a donation;
(v) Donating anonymously;
(vi) Seeking official action by the employee beneficiary's agency;
(vii) Doing business or seeking to do business with the employee
beneficiary's agency;
(viii) Conducting activities regulated by the employee
beneficiary's agency other than regulations or actions affecting the
interests of a large and diverse group of persons;
Example 1 to paragraph (b)(1)(viii): A donor contributed to a
Department of State employee's legal expense fund. The donor has
recently applied to renew their United States Passport. Because the
Department of State's passport renewal office affects the interests of
a large and diverse group of people, the donation is permissible under
paragraph (b)(1)(viii) of this section.
(ix) Substantially affected by the performance or nonperformance of
the employee beneficiary's official duties; or
(x) An officer or director of an entity that is substantially
affected by the performance or nonperformance of the employee
beneficiary's official duties.
(2) A national committee of a political party as defined by 52
U.S.C. 30101(14) and (16) or, for former members of a campaign of a
candidate for President or Vice President, the campaign, provided that
the donation is not otherwise prohibited by law and the entity is not
substantially affected by the performance or nonperformance of an
employee beneficiary's official duties; or
(3) An organization, established for more than two years, that is:
(i) described in section 501(c)(3) of the Internal Revenue Code and
exempt from taxation under section 501(a) of the Internal Revenue Code,
and
[[Page 33813]]
(ii) not substantially affected by the performance or
nonperformance of an employee beneficiary's official duties.
Note 1 to paragraph (b): Acceptance of a legal expense payment from
another employee must be analyzed under subpart C of this part.
(c) Contribution limits. A legal expense fund may not accept more
than $10,000 from any single permissible donor per calendar year.
Note 2 to paragraph (c): As discussed in Sec. 2635.1002(b)(2),
payments for legal expenses or the provision of pro bono legal services
that otherwise qualify for a gift exclusion or exception other than
Sec. 2635.204(n) in subpart B of this part are not covered by this
subpart.
(d) Use of funds. Legal expense fund payments must be used only for
the following purposes:
(1) An employee beneficiary's expenses related to those legal
proceedings arising in connection with the employee's past or current
official position, the employee's prior position on a campaign of a
candidate for President or Vice President, or the employee's prior
position on a Presidential Transition Team;
(2) Expenses incurred in soliciting for and administering the fund;
and
(3) Expenses for the discharge of Federal, state, and local tax
liabilities that are incurred as a result of the creation, operation,
or administration of the fund.
Example 1 to paragraph (d): An employee beneficiary's attorney
determines it is necessary to employ an expert witness related to a
legal proceeding arising in connection with the employee beneficiary's
official position. Funds may be distributed from the legal expense fund
to pay fees and expenses for the expert witness.
Sec. 2635.1007 Reporting requirements.
(a) Quarterly reports. An employee beneficiary must file quarterly
reports that include the following information until the trust is
terminated or an employment termination report is filed as set forth in
paragraph (d) of this section.
(1) Contributions. For contributions of $250 or more during the
quarterly reporting period, an employee beneficiary must report the
donor's name, city and state of residence, employer, date(s) of
contribution, and contribution amount. For the report due January 30,
an employee beneficiary must also disclose contributions from a single
donor of $250 or more for the prior calendar year unless the
contributions have been disclosed on a prior quarterly report.
(2) Distributions. For distributions of $250 or more during the
quarterly reporting period, an employee beneficiary must report the
payee's name, date(s) of distribution, amount, and purpose of the
distribution. For the report due January 30, an employee beneficiary
must also disclose distributions to a single source of $250 or more for
the prior calendar year unless the distributions have been disclosed on
a prior quarterly report.
(b) Filing of reports. (1) The employee beneficiary must file all
reports required in this section with the designated agency ethics
official at the agency where the employee beneficiary is employed. The
trustee or a representative of the employee beneficiary may file a
report on behalf of the employee beneficiary.
(2) An employee beneficiary who is an anonymous whistleblower may
choose to file reports anonymously through the employee beneficiary's
trustee or representative with the Office of Government Ethics. The
Office of Government Ethics will not receive reports containing
classified material; if needed, an OGE employee with a security
clearance will review any classified documents in a secure agency
space, consistent with the current practice for other ethics documents
containing classified material.
(c) Reporting periods and due dates. Quarterly reports must cover
the following reporting periods and comply with the following due
dates:
(1) January 1 to March 31, with the report due on April 30.
(2) April 1 to June 30, with the report due on July 30.
(3) July 1 to September 30, with the report due on October 30.
(4) October 1 to December 31, with the report due on January 30 of
the following year.
(5) If the scheduled due date falls on a Saturday, Sunday or
Federal Holiday, the report will instead be due the next business day.
(d) Employment termination report. If the employee beneficiary is
leaving executive branch employment, the employee beneficiary must file
an employment termination report no later than their last day of
employment. No contributions may be accepted for or distributions paid
by the legal expense fund between the date of the filing and the
employee beneficiary's termination date. The report must include the
following:
(1) A report of contributions received and distributions made as
required by paragraph (a) of this section between the end of the last
quarterly reporting period and the date of the report; and
(2) A statement as to whether the trust will be terminated or
remain in force after the employee beneficiary terminates their
executive branch employment.
(e) Extensions. For each quarterly report, a single extension of 30
calendar days may be granted by the employee beneficiary's designated
agency ethics official, or the Director of the Office of Government
Ethics if filing with the Office of Government Ethics, for good cause
upon written request by the employee beneficiary or the trustee.
(f) Review of reports. (1) Designated agency ethics official
review. The designated agency ethics official must review reports
within 30 calendar days of filing.
(i) Standard for review. The designated agency ethics official will
review the report to determine that:
(A) The information required under paragraph (a) of this section is
reported for each contribution and distribution; and
(B) Contributions to and distributions from the trust are in
compliance with Sec. 2635.1006.
(ii) Transmission of reports to the Office of Government Ethics.
Following review, all reports must be forwarded in unclassified format
to the Office of Government Ethics within seven calendar days.
(iii) Office of Government Ethics review for anonymous
whistleblowers. The Office of Government Ethics will serve as the
reviewing authority for anonymous whistleblowers who choose to file
reports anonymously with the Office of Government Ethics only.
(2) Office of Government Ethics review. Following review by the
designated agency ethics official, the Office of Government Ethics will
conduct a secondary review of the reports of the employee beneficiaries
listed in paragraph (f)(2)(ii) of this section within 30 calendar days
of receipt.
(i) Standard for review. The Office of Government Ethics will
review the report to determine whether it conforms to the requirements
established by this subpart. If defects are ascertained, the Office of
Government Ethics will bring them to the attention of the reviewing
agency and the employee beneficiary or the employee beneficiary's
trustee or representative, who will have 30 calendar days to take
necessary corrective action.
(ii) Employee beneficiaries requiring secondary Office of
Government Ethics review. The Office of Government Ethics will review
the reports of the following employee beneficiaries:
(A) The Postmaster General;
[[Page 33814]]
(B) The Deputy Postmaster General;
(C) The Governors of the Board of Governors of the United States
Postal Service;
(D) Employees of the White House Office and the Office of the Vice
President; and
(E) Officers and employees in offices and positions which require
confirmation by the Senate, other than members of the uniformed
services and Foreign Service Officers below the rank of Ambassador.
(3) Review for designated agency ethics official. When the employee
beneficiary is a designated agency ethics official, the Office of
Government Ethics will conduct the sole review. OGE will review the
report to determine that:
(i) The information required under paragraph (a) of this section is
reported for each contribution and distribution; and
(ii) Contributions to and distributions from the trust are in
compliance with Sec. 2635.1006.
(g) Public access. Quarterly and employment termination reports
will be made available by the Office of Government Ethics to the public
on its website within 30 calendar days of receipt. The reports will be
sortable by employee beneficiary's name, agency, and position, as well
as type of document and document date. Quarterly and employment
termination reports that are made available to the public by the Office
of Government Ethics will not include any information that would
identify individuals whose names or identities are otherwise protected
from public disclosure by law. The reports filed by anonymous
whistleblowers will not be made available to the public.
(h) Noncompliance. (1) Receipt of impermissible contributions. If
the legal expense fund receives a contribution that is not permissible
under Sec. 2635.1006, the contribution must be returned to the donor
as soon as practicable but no later than the next reporting due date as
described in paragraph (c) of this section. If the donation cannot be
returned to the donor due to the donor's death or the trustee's
inability to locate the donor, then the contribution must be donated to
a 501(c)(3) organization meeting the requirements in Sec.
2635.1008(c).
(2) Late filing of required documents and reports. If a report or
other required document is filed after the due date, the employee
beneficiary forfeits the ability to accept contributions or make
distributions through the trust until the report or other required
document is filed.
Example 1 to paragraph (h)(2): A Department of Labor employee
establishes a legal expense fund in accordance with this subpart.
Because the employee filed the trust document on February 15, the first
quarterly report is due on April 30. However, the employee did not
submit the first quarterly report until May 15. The employee is
prohibited from accepting contributions or making distributions through
the trust from May 1 until May 15. Once the employee files the
quarterly report, the employee may resume accepting contributions and
making distributions.
(3) Continuing or other significant noncompliance. In addition to
the remedies in paragraphs (h)(1) and (2) of this section, the Office
of Government Ethics has the authority to determine that an employee
beneficiary may not accept contributions and make distributions through
the trust or terminate the trust if there is continuing or other
significant noncompliance with this subpart.
Sec. 2635.1008 Termination of a legal expense fund.
(a) Voluntary termination. A legal expense fund may be voluntarily
terminated only for the following reasons:
(1) The purpose of the trust is fulfilled or no longer exists; or
(2) At the direction of the employee beneficiary.
(b) Mandatory termination. An employee's legal expense fund must be
terminated within 90 days of the resolution of the legal matter for
which the legal expense fund was created or within 90 days of the last
expenditure made in relation to the legal matter for which it was
created, whichever is later.
(c) Excess funds. Within 90 calendar days of termination of the
legal expense fund, the trustee must distribute any excess funds to an
organization or organizations described in section 501(c)(3) of the
Internal Revenue Code and exempt from taxation under section 501(a) of
the Internal Revenue Code. Funds from the legal expense fund may not be
donated to an organization that was established by the trustee or the
employee beneficiary, an organization in which the trustee or the
employee beneficiary, their spouse, or their child is an officer,
director, or employee, or an organization with which the employee has a
covered relationship within the meaning of Sec. 2635.502(b)(1). The
trustee has sole discretion to select the 501(c)(3) organization. If
practicable, the trustee may return the excess funds to the donors on a
pro-rata basis rather than donating the funds to a 501(c)(3)
organization.
(d) Trust termination report. After the trust is terminated, the
employee beneficiary must file a trust termination report that contains
the information required by Sec. 2635.1007(d)(1) for the period of the
last quarter report through the trust termination date. The report also
must indicate the organization to which the excess funds were donated
or if the excess funds were returned to donors. The report is due 30
calendar days following the termination date of the trust. Trust
termination reports should be filed in accordance with the procedures
outlined in Sec. 2635.1007(b).
(e) Exception for anonymous whistleblowers. An employee beneficiary
who is an anonymous whistleblower may choose to file the trust
termination report anonymously through the employee beneficiary's
trustee or representative with the Office of Government Ethics.
Sec. 2635.1009 Pro bono legal services.
(a) Acceptance of permissible pro bono legal services. An employee
may solicit or accept the provision of pro bono legal services for
legal matters arising in connection with the employee's past or current
official position, the employee's prior position on a campaign of a
candidate for President or Vice President, or the employee's prior
position on a Presidential Transition Team from:
(1) Any individual who:
(i) Is not an agent of a foreign government as defined in 5 U.S.C.
7342(a)(2);
(ii) Is not a foreign national;
(iii) Is not a lobbyist as defined by 2 U.S.C. 1602(10) who is
currently registered pursuant to 2 U.S.C. 1603(a); and
(iv) Does not have interests that may be substantially affected by
the performance or nonperformance of the employee's official duties;
and
(2) An organization or entity that does not have interests that may
be substantially affected by the performance or nonperformance of an
employee's official duties.
Note 1 to paragraph (a): Pursuant to Sec. 2634.907(g) of this
chapter, an employee who is a public or confidential filer under part
2634 of this chapter must report gifts of pro bono legal services on
the employee's financial disclosure report, subject to applicable
thresholds and exclusions.
(b) Provision of outside legal services. An employee may solicit or
accept payment for legal services for legal matters arising in
connection with the employee's past or current official position, the
employee's prior position on a campaign of a candidate for
[[Page 33815]]
President or Vice President, or the employee's prior position on a
Presidential Transition Team from an organization, established for more
than two years, that is described in section 501(c)(3) of the Internal
Revenue Code and exempt from taxation under section 501(a) of the
Internal Revenue Code. The organization, the legal services provider
that the organization pays for legal services, and the individual
attorney providing legal services must meet the requirements described
in paragraph (a) of this section. The term ``pro bono services''
includes the provision of outside legal services as described in this
section.
(c) Role of designated agency ethics official. The designated
agency ethics official must determine whether the organization, the
legal services provider that the organization pays for legal services,
and the individual attorney providing legal services meet the
requirements described in paragraph (a) of this section.
Example 1 to paragraph (c): A Department of Justice employee is an
eyewitness in an Inspector General investigation and is called to
testify before Congress. A local law firm offers to represent the
employee at no cost. The employee consults with an agency ethics
official, who determines that the attorney who would represent the
employee is neither an agent of a foreign government nor a lobbyist.
However, the law firm is representing a party in a case to which the
employee is assigned. The ethics official determines that the law firm
is a person who has interests that may be substantially affected by the
performance or nonperformance of the employee's official duties.
Accordingly, the employee may not accept the offer of pro bono legal
services from the law firm.
Example 2 to paragraph (c): A Securities and Exchange Commission
employee is harassed by a supervisor and files a complaint. A nonprofit
legal aid organization focusing on harassment cases offers pro bono
legal services to the employee at no cost. The employee consults with
an agency ethics official, who determines that the attorney who would
represent the employee is neither an agent of a foreign government nor
a lobbyist, and neither the attorney nor the nonprofit legal aid
organization has interests that may be substantially affected by the
performance or nonperformance of the employee's official duties.
Accordingly, the employee may accept the offer of pro bono legal
services from the nonprofit legal aid organization.
Example 3 to paragraph (c): A registered 501(c)(3) organization
whose mission focuses on assisting those experiencing workplace
harassment offers to pay for legal services for the Securities and
Exchange Commission employee from the preceding example. The legal
services themselves are performed by attorneys outside the
organization. The employee confers with an agency ethics official who
determines that the 501(c)(3) organization has been in operation for
more than two years, neither the organization nor the attorneys
performing legal services have interests that may be substantially
affected by the performance or nonperformance of the employee's
official duties, and the attorneys performing the legal services are
neither agents of foreign governments nor lobbyists. Accordingly, the
employee may accept the legal services even though they are provided by
attorneys outside of the 501(c)(3) organization.
Example 4 to paragraph (c): A Department of State employee is asked
to testify in a legal proceeding relating to a prior position at the
Department of Justice. An attorney at a large national law firm offers
pro bono services to the employee. The employee confers with an agency
ethics official who determines that although the attorney offering
representation is neither an agent of a foreign government nor a
lobbyist, the law firm is currently registered pursuant to 2 U.S.C.
1603(a), some members of the firm are registered lobbyists, and the
firm has business before other parts of the Department of State.
However, neither the attorney nor the law firm has interests that may
be substantially affected by the performance or nonperformance of the
employee's official duties. Accordingly, the employee may accept the
offer of pro bono legal services.
(d) Appeal process. An employee may appeal to the Office of
Government Ethics in matters when the agency is the party opponent in
the legal action. An employee may appeal the designated agency ethics
official's determination that the pro bono legal services are
prohibited; or a failure by the designated agency ethics official to
provide a determination regarding whether the pro bono legal services
are prohibited within 30 days. Appeals should be submitted within 60
days of denial by the designated agency ethics official, or within 90
days of submission to the designated agency ethics official, in the
case of a request that has not been acted upon.
[FR Doc. 2023-10290 Filed 5-24-23; 8:45 am]
BILLING CODE 6345-03-P
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</html>Indexed from Federal Register on May 25, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.