Conflicts of Interest and Government Employment (TXT)


CONFLICTS OF INTEREST AND GOVERNMENT
EMPLOYMENT



WHAT IS A CONFLICT OF INTEREST?

As an executive branch employee, you have the opportunity to use
your talent and expertise to do work that benefits the public.
Sometimes, though, your Government work may benefit you or your
family personally, or may affect individuals or organizations that
you have some connection with outside your Government job. In
these circumstances, the public could be concerned that you will be
motivated by considerations other than your desire to do what is
best for the public as a whole.

Because the success of our Government system depends upon
maintaining the confidence of the public, your department or agency
might decide that you shouldn't be involved in a certain assignment
because the public would be likely to question your objectivity.
For example - depending on the circumstances - an agency might
"disqualify" you from an assignment that will affect a member of
your household or that involves a person with whom you do business
outside the Government.

Of course, the public is likely to consider some circumstances more
troublesome than others. Recognizing this, Congress passed a
criminal conflict of interest law, 18 U.S.C. § 208, which prohibits
you from working on an assignment in some situations - even if you
know you can be objective and even if your supervisor wants you to
work on it. Specifically, this law says that you may not work on
an assignment that you know will affect your own financial
interests or the financial interests of your spouse or your minor
child. The prohibition also applies if you know the assignment
will affect the financial interests of your general partner, or of
an organization that you serve as an officer, director, employee,
general partner, or trustee. And it even applies when you know the
matter will affect the financial interests of someone with whom you
have an arrangement for employment, or with whom you are
negotiating for employment.

When you are unable to work on an assignment because of this
conflict of interest law, an agency can often reassign the matter
to another employee. However, if that is not possible or if your
inability to work on that particular assignment means you really
won't be doing the job the Government hired you to do, then your
agency can require you to get rid of the interest that is causing
the conflict.


EXEMPTIONS ALLOW YOU TO CONTINUE TO WORK ON YOUR OFFICIAL
ASSIGNMENTS

In some cases, however, the law recognizes that your personal
interest in an assignment may be so indirect or small that the
interest should not prevent you from being involved in the
assignment. In other words, certain interests you hold or
relationships you have with other people or organizations may
technically create a conflict of interest, but are too small or
insignificant to trouble the public about whether you can be
objective in carrying out your Government job. The Office of
Government Ethics (OGE) may "exempt" these types of interests from
the conflict of interest law. OGE has published a description of
these exemptions in Title 5 of the Code of Federal Regulations, at
part 2640. Most of the exemptions apply to employees of any
department or agency. However, if your agency prohibits you from
having a particular type of financial interest, the exemptions do
not allow you to work on an assignment that affects that prohibited
financial interest.


USING THIS PAMPHLET

This pamphlet describes the exemptions that are published in the
OGE regulation. The pamphlet covers three of the more widely-used
exemptions - those for interests in mutual funds, employee benefit
plans, and securities. It also contains a summary of the remaining
exemptions, some of which apply only to particular employees or in
special situations. If you find that you have a conflict of
interest that would ordinarily mean you can't work on one of your
assignments, but you are sure that one of the exemptions described
in this pamphlet applies, you may go ahead and work on the
assignment. But if you need help in deciding whether your
situation presents a conflict or whether you can use any of the
exemptions, you should consult with an ethics official at your
agency. Sometimes, when an exemption does not apply, you might be
able to obtain an individual waiver that will allow you to work on
your assignment.


EXEMPTIONS FROM THE CONFLICT OF INTEREST LAW

1. Diversified mutual funds

You may participate in assignments or projects affecting the
holdings of a diversified mutual fund.

In order to determine whether you may use this exemption, you will
need to know whether your interest is in a "diversified" mutual
fund.


A fund is "diversified" if it does not have a policy of
concentrating its investments in an industry, business, country
(other than the U.S.) or State. You can often tell if a fund
concentrates its investments by the name of the fund. For example,
if the fund name contains the word "telecommunications" or "Canada"
or "energy," it's a good indication that the fund is concentrated
in those areas and therefore not diversified. Funds that
concentrate their investments in this way are sometimes called
"sector" funds. You can check the fund's prospectus or call a
broker or the manager of the fund if you are in doubt. Also, keep
in mind that a "mutual fund" is not an informal collection of
stocks or bonds such as those held in a family trust.

Note: This exemption is not limited by the value of your interest
in the fund or number of shares you hold. As long as your interest
is in a diversified mutual fund, this exemption applies.

Example: You have purchased shares worth $10,000 in a mutual fund
whose portfolio contains, among other things, stock in a computer
company. The prospectus you received when you purchased your
shares does not state that the fund has a policy of concentrating
its investments in a particular industry, business, State or
country. You may participate in an assignment even if it will
affect the computer company.

2. Employee benefit plans

You may participate in assignments or projects affecting the
holdings of the Federal Government Thrift Savings Plan, a State or
local Government pension plan, or other diversified employee
benefit plan.

Many of you may already be participants in the Thrift Savings Plan
for Federal employees. Your interest in the holdings of this plan,
as well as in the holdings of State or local Government pension
plans, are considered too indirect or inconsequential to concern
the public that the integrity of your Government services will be
affected.

The exemption also applies to interests in other types of employee
benefit plans, usually pension plans from former employers. In the
case of these other plans:

- the plan manager should have a written policy of diversifying
assets (if you are not sure you can call the plan manager);

- the investments of the plan must be administered by an
independent trustee (you may not be participating in the selection
of the investments);

- the plan must not be a profit-sharing or stock bonus plan (other
than a 401(k) plan).

Note: If the trustee doesn't have a formal document stating that
the plan assets will be diversified, he can simply provide that
information in a letter to you.

Example: An attorney leaves a law firm to take a position with the
Department of Justice. As a result of his employment with the
firm, the employee has interests in a 401(k) plan. The plan
invests in stocks and bonds chosen by an independent financial
management firm. As long as the financial management firm that
selects the plan's investments has a written policy of diversifying
the plan's assets, the employee may participate in assignments
affecting the holdings of the plan.

3. Securities

With certain limitations described below, you may participate in
assignments or projects affecting companies or other entities in
which you own stocks, bonds or other securities. The exemption
applies only if the "securities" are listed on a stock exchange or
through NASDAQ, or are issued by a registered investment company,
or are long-term Government bonds or municipal bonds.

If the company that issued the stock or bond you own is directly
involved in a matter to which you have been assigned, then you may
participate in the matter if you have no more than $15,000 in
holdings in the company. In practical terms, this exemption applies
when you've been assigned to work on a grant, contract, application
for approval or benefits, case in litigation, claim against the
Government, or other type of similar matter that involves the
company as a "party."

If the Government matter to which you've been assigned doesn't
involve "parties," but is a broader or more general type of matter
(like drafting a regulation) focused on the interests of a distinct
class of persons, you may go ahead and work on your assignment if
you own no more than $25,000 worth of securities in a company that
is part of the class affected by the matter. If you have holdings
in more than one company affected by the matter, you can work on
your assignment if the combined value of those holdings is no more
than $50,000.

Note: To decide whether this exemption may be used, you must add
together your holdings and those of your spouse and minor children,
in calculating the value of the securities.

Sometimes stock (or other security) that is valued under the
maximum amount allowable at the beginning of an assignment
increases in value while you are working on the assignment. This
might happen, for example, when you are monitoring a contract with
a company in which you own less than $15,000 worth of stock. As
soon as you realize that the value of the stock is more than
$15,000, you must stop working on the assignment until you divest
the amount of stock over $15,000 or receive an individual waiver
that would allow you to continue to participate.

Example 1: An employee of the General Services Administration owns
stock in XYZ Corp. valued at $3,000. Her husband also owns $10,000
worth of stock in XYZ Corp. As part of her official duties, the
employee is assigned to evaluate bids for maintenance services at
her agency. When the bids are opened, she discovers that XYZ Corp.
is one of the companies that has submitted a bid. The employee
does not need to disqualify herself from evaluating the bids
because the combined value of her stock and her husband's stock is
no more than $15,000.

Example 2: An employee of the Bureau of Export Administration is
assigned to draft a regulation concerning exportation of portable
computers. The regulation will affect all domestic companies that
sell portable computers abroad. She owns $17,000 worth of stock in
CompAmerica and $20,000 worth of stock in Laptops, Inc. Even
though both of these companies will be affected by the regulation,
she may continue with her assignment because the value of the stock
she owns in any one affected company is no more than $25,000 and
value of her stock in all affected companies is no more than
$50,000.


OTHER EXEMPTIONS

There are several more exemptions in addition to the three
previously discussed. Many of these exemptions relate to financial
interests that don't cause a conflict of interest for most
employees. Therefore, the remaining exemptions mentioned below may
apply only to certain employees or only in special situations.
Some of the summaries of these exemptions may not provide the
detail you may need in order to determine whether the exemption
applies. Based on the brief summaries below, if you believe you
are in a situation in which an exemption is available, contact your
ethics official for further advice.

Sector mutual funds: An employee may work on assignments or
projects affecting holdings in his sector mutual fund as long as
the affected holdings are not in the fund's area of concentration.
For example, an employee who owns shares in the Alpha Utility Fund
may work on an agency procurement for the acquisition of computers
from IBM even though IBM stock is one of the holdings of the Alpha
Utility Fund. IBM is not in the fund's area of concentration, the
utilities sector. If the affected holdings are in a fund or funds'
area of concentration, the employee may work on the assignment or
project when the aggregate value of all sector funds that
concentrate in the sector is no more than $50,000.

Matters affecting nonparties: An employee may work on
assignments or projects involving specific parties that affect
publicly traded securities issued by a nonparty where the
aggregated value of those holdings is no more than $25,000. The
stock of all affected nonparties held by the employee, the
employee's spouse, and minor children must be aggregated.

Federal Government securities: An employee may work on
assignments or projects affecting short-term Federal Government
securities or U.S. Savings bonds. Short-term Federal Government
securities are U.S. Treasury bills that mature in one year or less.

Securities held by tax-exempt organizations: An employee may
work on assignments or projects affecting certain securities held
for investment by a tax-exempt organization in which the employee
holds an unpaid position. The exemption applies in cases where the
employee's assignment affects the organization's investments (as
opposed to the organization itself), and where the employee is not
making investment decisions for the organization.

General partners: An employee may work on assignments or
projects affecting companies or other entities in which his general
partner owns stocks, bonds or other securities. This exemption may
be used when the value of the securities is no more than $200,000.
Also, in cases where an employee is a limited partner in a large
partnership, he may participate in projects and assignments
affecting any interest of his general partner.

Hiring decisions: An employee may participate in a hiring
decision involving a job applicant currently employed by a
corporation that issues publicly traded securities when the
employee owns securities issued by the corporation or participates
in a pension plan sponsored by the corporation.

Employees on leave from institutions of higher education: An
employee on leave of absence from an institution of higher
education may work on broad or general assignments or projects that
affect the university from which he is on leave. The project or
assignment must be one that affects the university as part of a
group of entities that will be affected.

Multi-campus institutions of higher education: An employee may
work on assignments or projects affecting one campus of a State
multi-campus university if the employee is employed at a separate
campus of the university and his position at the separate campus
does not involve multi-campus responsibilities.

Financial interests arising from Federal Government employment
or from Social Security or veterans' benefits: An employee may work
on assignments or projects where his interest in the assignment or
project arises from his Federal Government salary, or his Social
Security or veterans benefits. He may not, however, make decisions
that will specially affect his own salary or benefits, or make
decisions or even recommendations that specially affect the salary
or benefits of his spouse, minor child, or general partner.

Commercial discount and incentive programs: An employee may
work on a project or assignment affecting the sponsor of a discount
or other similar benefit program (like a Frequent Flyer club
sponsored by an airline) even if he is participating in the
program. The program must be open to the public. If the program
requires any other interest in the sponsor, such as the ownership
of stock, the employee cannot use the exemption.

Mutual insurance companies: An employee may hold a policy with
a mutual insurance company and work on a project or assignment
affecting that company as long as the matter does not affect the
company's ability to pay claims under the policy or pay the cash
value of the policy.

Employment interests of special Government employees serving
on advisory committees: A special Government employee serving on an
advisory committee may work on broad or general assignments or
projects that affect his non-Federal employer or prospective
employer. The assignment or project must not have a special effect
on the employee or the employer except as part of a class.

Medical products: A special Government employee serving on an
advisory committee may work on committee matters involving medical
products that he or the medical facility with which he is
affiliated uses or prescribes for patients.

Nonvoting members of standing technical advisory committees
established by the Food and Drug Administration (FDA): A special
Government employee serving as a nonvoting representative on an FDA
advisory committee may participate in a committee matter that
affects the class he represents.

Employees of Tennessee Valley Authority (TVA): A TVA employee
may work on assignments affecting the cost of electric power sold
by the TVA even if he uses the electric power.

Directors of Federal Reserve Banks: An employee serving as a
Director of a Federal Reserve Bank or branch may establish rates
charged for advances and discounts, and participate in certain
other matters specified in the OGE regulation.

Employees of the Bureau of the Census: Certain employees of
the Bureau of the Census may participate in the decennial census
notwithstanding certain disqualifying financial interests.